FINRA Series 7 — All Questions

A whole-account ACATS transfer was completed on January 12, 2027. On Tuesday, March 2, 2027, a dividend credit posts to the closed account at the carrying firm. By what date must the credit be transferred?

• a.Tuesday, March 23, 2027
• b.Tuesday, March 16, 2027✓
• c.Friday, March 5, 2027
• d.Tuesday, March 9, 2027

For at least six months after a whole-account transfer, the carrying firm must pass on credit balances within ten business days after they accrue. March 2 is within the six months. Ten business days after March 2 runs March 3, 4, 5, 8, 9, 10, 11, 12, 15 and 16, so the deadline is Tuesday, March 16. March 5 counts three business days. March 9 counts five. March 23 counts fifteen.FINRA Rule 11870(n)(2)

A customer closes her account on October 14, 2026. What is the earliest date the firm may discard the account cards that set out the terms and conditions for opening and maintaining the account?

• a.October 14, 2031
• b.October 14, 2029
• c.October 14, 2030
• d.October 14, 2032✓

Rule 17a-4(c) requires account cards or records relating to the terms and conditions of opening and maintaining an account to be kept for at least six years after the account is closed. Six years from October 14, 2026 is October 14, 2032. The earlier dates correspond to three, four and five years, none of which meets the six-year minimum.SEA Rule 17a-4(c)

A customer's account remains open. On March 12, 2024, she gave the firm a new home address, replacing the one on the account record. Until when must the firm keep the replaced address information?

• a.At least until March 12, 2030, six years after it was replaced✓
• b.At least until March 12, 2027, three years after it was replaced
• c.Only until the account is closed, whenever that happens
• d.At least until six years after the account is eventually closed

Rule 17a-4(e)(5) requires account record information to be kept until at least six years after the earlier of the date the account was closed or the date the information was collected, provided, replaced or updated. The account is still open, so the replacement date controls: six years after March 12, 2024 is March 12, 2030. Keeping it only until closing, or for three years, falls short of six. Waiting six years after closing is not required, because the earlier date governs.SEA Rule 17a-4(e)(5)

A firm wants to send its customer order tickets to an off-site archive 30 months after each trade. Which statement is correct about order memoranda under Rule 17a-4?

• a.Permitted, but the tickets must then be kept six years, with the first three years easily accessible
• b.Not permitted, since all three years of the retention period must be easily accessible on site
• c.Permitted, since the memoranda are kept three years and only the first two must be easily accessible✓
• d.Not permitted, since the tickets must stay in the firm's own offices for the full six years

Rule 17a-4(b)(1) covers order memoranda under Rule 17a-3(a)(6) with a three-year retention period, the first two years in an easily accessible place. At 30 months the tickets are past the accessibility period but still inside the retention period, so archiving them off site is fine. Requiring the full period to be accessible, or lengthening retention to six years, misreads the rule.SEA Rule 17a-4(b)(1)

A compliance officer is clearing an archive and finds four records: a Form BDW the firm filed, a superseded compliance manual, a report produced to review customer accounts for unusual activity, and a customer order ticket. Which must the firm keep for the life of the enterprise?

• a.The old compliance manual
• b.The unusual-activity report
• c.The oldest order ticket
• d.The Form BDW the firm filed✓

Rule 17a-4(d) requires a firm to keep partnership articles or corporate charter documents, minute books, and all Forms BD and BDW during the life of the enterprise and any successor. A compliance manual is kept three years after its use ends. Unusual-activity reports are kept eighteen months from the date generated. Order tickets are kept three years.SEA Rule 17a-4(d)

A firm replaces its written supervisory procedures manual with a new version, and use of the old version ends on June 30, 2026. What is the earliest date the old manual may be discarded?

• a.June 30, 2029✓
• b.December 31, 2027
• c.June 30, 2032
• d.June 30, 2027

Rule 17a-4(e)(7) requires each compliance, supervisory and procedures manual to be kept until three years after its use terminates. Three years after June 30, 2026 is June 30, 2029. June 30, 2027 is only one year. December 31, 2027 reflects the eighteen-month period that applies to unusual-activity reports. June 30, 2032 applies a six-year period that does not govern manuals.SEA Rule 17a-4(e)(7)

A firm receives notice of a customer's change of address on October 14, 2026, and updates the account record. By what date must it notify the customer's old address and the responsible registered representative?

• a.December 13, 2026
• b.October 21, 2026
• c.November 13, 2026✓
• d.November 28, 2026

Rule 17a-3(a)(17)(i)(B)(2) requires notice of a name or address change to go to the customer's old address, or to each joint owner, and to the responsible associated person on or before the 30th day after the firm received notice. Thirty days after October 14 is November 13. The other dates are 7, 45 and 60 days, none of which the rule uses.SEA Rule 17a-3(a)(17)(i)(B)(2)

A customer tells her representative she now wants income instead of growth. The firm updates her account record on a Monday, and the next statement is scheduled to mail 20 days later. What does the firm owe the customer and others?

• a.No notice now, since objectives are only confirmed at the next scheduled 36-month review
• b.The updated record to the customer only, since her representative already knows about the change
• c.The updated record by separate certified mail, because a statement mailing cannot carry the record
• d.The updated record sent to the customer and her representative within 30 days, which a statement may carry✓

A change in investment objectives requires the firm to furnish the updated record to the customer and the responsible associated person on or before the 30th day, and the rule allows the firm to send it with the next scheduled statement. Twenty days is inside the window. Leaving out the representative omits a required recipient. No separate certified mailing is needed. The 36-month cycle is the periodic refresh and does not excuse notice of a change.SEA Rule 17a-3(a)(17)(i)(B)(3)

A broker-dealer receives a registrant's proxy materials for beneficial owners on Tuesday, November 17, 2026. By what date must it forward them to its customers?

• a.Monday, November 23, 2026
• b.Thursday, December 3, 2026
• c.Tuesday, November 24, 2026✓
• d.Friday, November 20, 2026

Rule 14b-1(b)(2) requires the broker-dealer to forward proxy material no later than five business days after receipt. From Tuesday, November 17, the five business days are November 18, 19, 20, 23 and 24, so the deadline is Tuesday, November 24. November 20 is three business days and November 23 is four. December 3 is about ten business days after receipt.SEA Rule 14b-1(b)(2)

A broker-dealer receives an issuer's search card inquiry on Tuesday, December 1, 2026. By what date must it respond to the registrant?

• a.Tuesday, December 8, 2026
• b.Friday, December 4, 2026
• c.Thursday, December 10, 2026✓
• d.Tuesday, December 15, 2026

Rule 14b-1(b)(1) gives the broker-dealer seven business days after receiving the inquiry to respond with the approximate number of beneficial owners and the number who have objected to disclosure. The seven days are December 2, 3, 4, 7, 8, 9 and 10, so the deadline is Thursday, December 10. December 4 is three business days and December 8 is five, which is the proxy-forwarding period. December 15 is ten.SEA Rule 14b-1(b)(1)

A customer has told her broker-dealer that she objects to disclosure of her name and holdings to issuers. A corporation sends proxy materials for a stock she owns in street name. What must the broker-dealer do?

• a.Forward the materials and include her name and address on the list supplied to the issuer
• b.Forward the materials to her within five business days, but keep her name from the issuer✓
• c.Withhold the materials as well, since her objection means the issuer may not reach her
• d.Forward the materials only after she signs a waiver of her objection to disclosure

An objecting beneficial owner still receives proxy material; Rule 14b-1(b)(2) requires forwarding to customers who are beneficial owners within five business days. The objection limits what the firm tells the issuer: under (b)(3) the firm provides names, addresses and positions only for non-objecting owners. Withholding the materials denies her a vote. Putting her on the list ignores her objection. A waiver is not a condition of forwarding.SEA Rule 14b-1(b)(2) and (b)(3)

A customer buys $60,000 of marginable stock in a margin account and deposits the $30,000 Regulation T requirement. The stock then rises to $76,000 with no other activity. If the firm credits the excess equity to the special memorandum account (SMA), how much additional marginable stock can the customer buy without depositing cash?

• a.$46,000
• b.$8,000
• c.$16,000✓
• d.$32,000

Equity after the rise is $76,000 less the $30,000 debit, or $46,000. Regulation T requires 50% of the $76,000 market value, or $38,000, so excess equity of $8,000 is credited to SMA. At a 50% initial requirement, $8,000 of SMA supports $16,000 of purchases. The $8,000 figure forgets that the customer pays only half of a new purchase. The $32,000 figure divides by the 25% maintenance rate instead of the 50% initial rate, and $46,000 is total equity, not excess equity.Regulation T, 12 CFR 220.5 and 220.12(a)

A customer buys 800 shares of Corvel Dynamics at $60 in a margin account and deposits the Regulation T requirement. Assuming a 25% maintenance requirement and no other positions, at what price per share does a maintenance call first arise?

• a.Below $30.00
• b.Below $45.00
• c.Below $37.50
• d.Below $40.00✓

The purchase is $48,000 and the debit is $24,000, or $30 a share. Equity must stay at 25% of market value, so market value must stay at or above the debit divided by 75%, which is $32,000, or $40 a share. Multiplying the $30 debit by 1.25 gives $37.50 and understates the trigger. Taking 75% of the purchase price gives $45, which treats 25% as a price decline. A price of $30 is where equity would reach zero.FINRA Rule 4210(c)(1)

A margin account holds only 1,000 shares of Tanner Optics bought at $50 with a Regulation T deposit. The price falls to $30. Assuming a 25% maintenance requirement, what is the least amount of stock, at current prices, the customer must sell to cure the deficiency?

• a.$5,000
• b.$2,500
• c.$7,500
• d.$10,000✓

The debit is $25,000 and the market value is now $30,000, so equity is $5,000. Maintenance requires $7,500, a deficiency of $2,500. Selling stock uses the proceeds to cut the debit, so equity stays at $5,000 while the requirement falls by 25% of the amount sold. Equity must equal 25% of what remains, so the remaining value must be $20,000 and $10,000 must be sold. The deficiency of $2,500 is the amount to deposit, not to sell. Equity of $5,000 and the requirement of $7,500 are inputs to the calculation, not the sale amount.FINRA Rule 4210(c)(1)

To open a short position, a customer sells 400 shares of Lumen Foods at $25 in a margin account holding no other positions. How much must the customer deposit to satisfy Regulation T?

• a.$3,000
• b.$5,000✓
• c.$10,000
• d.$15,000

Regulation T sets the required margin on a short sale of a stock at 150% of its market value, which includes the $10,000 of sale proceeds held in the account. The customer therefore deposits the other 50% of $10,000, or $5,000. The $3,000 figure is the 30% maintenance level applied at the outset. The $10,000 figure is a full 100% of the value, and $15,000 is the total of 150%, which includes the proceeds the account already holds.Regulation T, 12 CFR 220.12(c)

A customer sold short 1,000 shares of Brightwell Pharma at $40 and deposited the Regulation T margin, so the account holds $60,000 of credits against the short position. The stock rises to $48. Assuming a 30% maintenance requirement on the short, what is the maintenance deficiency?

• a.$2,400✓
• b.$14,400
• c.$4,000
• d.$12,000

With the stock at $48 the short position is worth $48,000, so equity is $60,000 less $48,000, or $12,000. Maintenance for a short stock priced at $5 or more is 30% of market value, or $14,400, so the deficiency is $2,400. A deficiency of $4,000 applies the 50% initial rate to the $8,000 rise in the stock, which is not the test after the position is open. The $12,000 figure is the account's equity, and $14,400 is the requirement, not the shortfall.FINRA Rule 4210(c)(3)

A customer opening a new margin account buys $1,800 of marginable stock and holds nothing else. How much cash must the customer deposit for the purchase?

• a.$450, the 25% maintenance amount
• b.$2,000, the minimum equity amount
• c.$900, the 50% Regulation T amount
• d.$1,800, the cost of the stock✓

FINRA Rule 4210(b) requires equity of at least $2,000 in the account, but cash need not be deposited in excess of the cost of the securities purchased. A 50% Regulation T deposit of $900 would leave equity under $2,000, so the customer pays the full $1,800 cost. The $2,000 minimum does not require the customer to deposit more than the cost, and $450 is a 25% maintenance-level figure that has no role in the initial deposit.FINRA Rule 4210(b)(4)

A customer buys 200 shares of a nonexempt stock in a cash account on Tuesday, November 17, 2026. Assuming no holidays and no extension, by what date must the firm obtain full payment under Regulation T?

• a.Thursday, November 19, 2026
• b.Wednesday, November 18, 2026
• c.Friday, November 20, 2026✓
• d.Monday, November 23, 2026

Regulation T defines the payment period as the number of business days in the standard settlement cycle plus two business days. With T+1 settlement the period is three business days after the trade date, which puts payment due on Friday, November 20. The following Wednesday is the settlement date, not the payment deadline. Thursday counts only two business days after the trade date. Monday would add a fourth business day, the period that applied before the settlement cycle shortened.Regulation T, 12 CFR 220.2 and 220.8(b)(1)

A customer buys 300 shares of Harlan Mills in a cash account on Monday and sells all 300 shares on Wednesday. The customer has not paid for the purchase and does not pay within the Regulation T payment period. What restriction applies to the account?

• a.For 90 calendar days after the sale, the customer may sell securities but may not buy any
• b.For 90 calendar days after the sale, the account is converted to a margin account with 100% maintenance
• c.For 30 calendar days after the sale, the customer must pay in full by the trade date for each purchase
• d.For 90 calendar days after the sale, the customer must pay in full at the time of each purchase✓

When a nonexempt security in a cash account is sold without having been paid for in full, Regulation T withdraws the privilege of delaying payment beyond the trade date for 90 calendar days after the sale. During the freeze the customer can still buy, but must have full payment at the time of the purchase. The period is 90 days, not 30. Nothing converts the account to a margin account, and the freeze does not bar purchases outright.Regulation T, 12 CFR 220.8(c)

A customer who made four day trades in five business days last spring now asks whether the pattern day trader rules still apply to a margin account at a member that has implemented FINRA's intraday margin amendments to Rule 4210, effective June 4, 2026. Which statement is correct?

• a.The customer is designated a pattern day trader and must keep $25,000 of equity in the account while day trading
• b.The intraday margin test replaces the 25% maintenance requirement for margin accounts that trade during the day
• c.The day trade count designation remains, but the $25,000 minimum equity requirement was repealed for margin accounts
• d.Neither the day trade count test nor the $25,000 minimum applies; members test for intraday deficits instead✓

The amendments replace the day trading margin requirements in their entirety, including the day trade count that designated a pattern day trader and the $25,000 minimum equity. The member instead determines an intraday margin deficit for any day with an IML-reducing transaction. Treating the customer as a pattern day trader applies the old rule, and keeping the count while dropping the $25,000 is a half update. FINRA also stated that the regular maintenance margin requirements are unchanged and the new rule supplements them.FINRA Rule 4210(d)(2); Regulatory Notice 26-10

A margin account with $60,000 of equity incurs a $4,000 intraday margin deficit on a Monday. The customer makes a practice of not satisfying such deficits and has not satisfied this one by the close of business on the fifth business day after Monday. What must the member do?

• a.Take no action until the deficit has remained outstanding for 15 business days, at which point it is no longer outstanding
• b.Prevent the customer from creating or increasing a short position or debit balance for 90 calendar days or until the deficit is cured✓
• c.Restrict the account to liquidating transactions for 90 calendar days, with no early release if the customer later satisfies the deficit
• d.Issue a Regulation T call and liquidate positions on the sixth business day if the deficit is still outstanding at that time

The 90 day freeze applies when a customer makes a practice of failing to satisfy intraday margin deficits and has not satisfied one by the close of the fifth business day. The small-deficit exception covers only deficits no larger than the lesser of 5% of equity, which is $3,000 here, and $1,000, so the limit is $1,000 and the $4,000 deficit does not qualify. The member must prevent the customer from creating or increasing a short position or debit balance, other than by closing a short, for 90 calendar days after that fifth day or until the deficit is satisfied. The freeze does not limit the account to liquidations. The deficit ceasing to be outstanding on the fifteenth business day does not lift the freeze.FINRA Rule 4210(d)(2); Regulatory Notice 26-10

A customer's account holds a $9,400 free credit balance from a stock sale, and the customer has given no instruction to invest or sweep it. What must the broker-dealer give the customer with the account statement at least once every three months?

• a.A request that the customer re-sign a written authorization allowing the firm to continue holding the balance
• b.A notice that the balance will move to a money market fund unless the customer objects within 30 days of the notice
• c.A written statement of the amount owed on the statement date and that the funds are payable on demand✓
• d.A written statement that the balance is protected by FDIC insurance up to $250,000 per depositor at the firm

Rule 15c3-3(j)(1) requires a firm, as part of the customer's statement of account and not less often than every three months, to send a written statement of the amount due to the customer on the date of the statement and that the funds are payable on demand. A notice that the balance will move to a money market fund unless the customer objects belongs to the separate sweep-program rules in (j)(2) and is not the quarterly statement required here. Free credit balances at a broker-dealer are protected by SIPC, not by FDIC insurance. No re-signed authorization to hold the balance is required.SEA Rule 15c3-3(j)(1)

A new 71-year-old retail customer opens a brokerage account and declines to name a trusted contact person. May the firm open the account?

• a.Yes, if the firm makes reasonable efforts to obtain the trusted contact information✓
• b.No, the information must be obtained before the first transaction in the account settles
• c.Yes, if the customer signs a waiver and the firm limits the account to liquidating transactions
• d.No, a trusted contact is required for customers who are 65 or older, so the account must be refused

Rule 4512 requires a member to maintain the name of and contact information for a trusted contact person age 18 or older for non-institutional accounts, but Supplementary Material .06(b) says the absence of that information does not prevent the firm from opening or maintaining the account, provided it makes reasonable efforts to obtain it. The requirement applies to retail accounts of any age, not just older customers. The timing rule before settlement belongs to the tax ID and employment information, and no waiver or liquidation-only limit exists in the rule.FINRA Rule 4512(a)(1)(F) and Supplementary Material .06(b)

A firm opens an account for an individual who will buy stocks the representative recommends. Which information must the firm make reasonable efforts to obtain before the first transaction in the account settles?

• a.The customer's annual income, net worth and liquid net worth, in a form the customer signs
• b.A copy of the most recent statement from the broker-dealer that previously held the customer's assets
• c.Tax ID or Social Security number, occupation and employer, and any association with another member✓
• d.The customer's investment time horizon, risk tolerance and a signed investment policy statement

Rule 4512(a)(2) requires reasonable efforts, before settlement of the initial transaction in a non-institutional account, to obtain the customer's tax ID or Social Security number, occupation and employer, and whether the customer is an associated person of another member. Financial profile items such as income and net worth, time horizon and risk tolerance are gathered for suitability and best-interest purposes, and a prior statement is not part of this list.FINRA Rule 4512(a)(2)

Under FINRA Rule 4512, which of these customers is an institutional account?

• a.A broker-dealer with $30 million in total assets and a clearing arrangement
• b.A natural person with $40 million in total assets, held mostly in securities
• c.A corporation with $49 million in total assets, owned by a single family
• d.A state-registered investment adviser with $2 million in total assets✓

Rule 4512(c) names banks, savings and loan associations, insurance companies and registered investment companies, advisers registered with the SEC or a state, and any other person with total assets of at least $50 million. The state-registered adviser qualifies by type regardless of size. The individual and the corporation fall short of the $50 million threshold, and a broker-dealer is not among the listed types, so its $30 million of assets does not qualify it.FINRA Rule 4512(c)

A firm accepts an order from an institutional customer to buy 10,000 shares, with payment to be made to the customer's agent bank on delivery. Which step does FINRA Rule 11860 require?

• a.Mark the order collect on delivery and send the confirmation data by the end of the trade date✓
• b.Send the confirmation data by the end of the settlement date, once the agent bank acknowledges receipt
• c.Settle the trade outside a clearing agency, since payment is made to an agent rather than the customer
• d.Obtain the agent bank's name and address within five business days after the trade is executed and confirmed

Rule 11860 allows a member to accept an order for payment or delivery through the customer's agent only if, among other things, the member received the agent's name and address before or when accepting the order, noted the order as payment on delivery or collect on delivery, and delivered the confirmation or its data by the end of the trade date. The agent details are required at acceptance, not afterward. Depository eligible trades must settle through a clearing agency's facilities.FINRA Rule 11860(a)

A participant in an employer's 401(k) plan has a vested balance of $64,000 and wants a plan loan to buy a car. Assuming the plan permits loans on standard terms, what is the most the participant may borrow, and what is the general repayment period?

• a.$50,000, repaid within five years
• b.$32,000, repaid within five years✓
• c.$64,000, repaid within five years
• d.$32,000, repaid within ten years

A plan loan is limited to the lesser of 50% of the vested balance or $50,000, so this participant may borrow $32,000. Repayment is generally due within five years, with at least quarterly payments, and the longer period applies only when the loan buys a primary residence. The $50,000 figure ignores the 50% cap, and the whole vested balance is far above either limit. The $10,000 minimum exception applies only when 50% of the balance is under $10,000.IRS Retirement Topics: Loans

Maria, born August 20, 1953, owns a traditional IRA and turns 73 in 2026. She waits until April 1, 2027 to take her first required minimum distribution, which is for 2026. By when must she take the distribution for 2027?

• a.April 15, 2028
• b.December 31, 2027✓
• c.April 1, 2027
• d.December 31, 2028

The April 1 date applies only to the first distribution, which is for the year the owner turns 73. Each later distribution is due by December 31 of its own year, so the 2027 distribution is due December 31, 2027, and she will take two distributions in 2027. Neither April 1, 2027 nor the following April applies to later years, and April 15 is the tax filing date, not a distribution deadline. Because the two come due on different dates, the 2027 amount is not folded into the first.IRS Retirement Topics: Required Minimum Distributions

On Monday, a retail customer tells her representative by phone, "Buy 500 shares of Orchard Labs whenever you think the price is right." The representative has not filled the order by Wednesday and the customer has signed no document. May he still use that discretion on Wednesday?

• a.Yes, for up to three business days, as long as the order ticket records that discretion was given by the customer
• b.No, the discretion ended at the close of Monday unless the customer signed and dated a written extension✓
• c.No, because time and price discretion needs a full written authorization from the customer even on the first day
• d.Yes, because the order is for a definite amount of a named security, which is all the exception requires

Rule 3260(d)(1) excludes time and price discretion on an order for a definite amount of a specified security from the discretionary account rules, but the authority stays in effect only until the end of the business day it was given, absent a specific written contrary indication signed and dated by the customer. By Wednesday it has lapsed. No three-day extension exists, a definite amount does not extend the day limit, and the first day needs no written authorization.FINRA Rule 3260(d)(1)

A long-time client gives a representative verbal permission to pick securities and decide when to trade in her account, and says she will sign the paperwork next month. What does Rule 3260(b) require before the representative may exercise that discretion?

• a.A recording of the verbal permission, kept with the account records and reviewed by a principal
• b.The client's written authorization within 10 business days after the first discretionary trade is made
• c.Prior written authorization from the client, and the firm's written acceptance of the account✓
• d.The client's written authorization, with the firm's acceptance given within 30 days afterward

Rule 3260(b) bars a member or representative from exercising discretionary power unless the customer has given prior written authorization to a stated individual and the member has accepted the account, as evidenced in writing by a partner, officer or manager designated under Rule 3110. A promise to sign later, a recording or a delayed acceptance does not meet the prior-authorization and acceptance requirement.FINRA Rule 3260(b)

A firm's procedures have a principal review all discretionary orders in a single batch at the end of each month. Is this consistent with Rule 3260(c)?

• a.No, a principal must approve each discretionary order in writing before it is entered by the representative
• b.Yes, a monthly review satisfies both the written approval of orders and the frequent review of accounts
• c.Yes, provided the customer receives a monthly statement showing every discretionary trade in the account
• d.No, each discretionary order needs prompt written approval, and accounts need review at frequent intervals✓

Rule 3260(c) requires the member or designated person to approve promptly in writing each discretionary order entered and to review discretionary accounts at frequent intervals to detect transactions that are excessive in size or frequency. A once-a-month batch does not meet the prompt approval standard. The rule calls for approval promptly after entry, not before, and a customer statement does not replace the firm's own review.FINRA Rule 3260(c)

A broker-dealer changes its clearing firm and plans to move customers' sweep money market fund shares to the new clearing firm's fund at net asset value, using a negative response letter instead of individual authorizations. Which condition must the firm meet?

• a.The firm must obtain written consent from each customer whose balance exceeds $10,000 before the exchange
• b.The letter must include a fee comparison, and the feature may start when the customer has had the letter for 15 days
• c.The letter must be mailed at least 10 days before the exchange, and the new fund's prospectus is sent on request
• d.The letter must include a fee table and a prospectus, and the feature cannot start until 30 days after mailing the letter✓

Rule 3260(d)(2) exempts bulk exchanges of money market fund shares at net asset value using negative response letters for fund mergers, clearing firm changes and sweep exchanges, if the letter contains a tabular comparison of fees, a comparison of investment objectives with the new fund's prospectus, and the negative response feature is not activated until at least 30 days after mailing. Shorter waiting periods, a prospectus on request, and a consent threshold are not features of the rule.FINRA Rule 3260(d)(2)

A firm's representatives recommend only the firm's proprietary mutual funds to retail customers. Under Regulation Best Interest, what must the firm do?

• a.Obtain a signed waiver from each customer, which then relieves the firm of its conflict of interest policy obligations
• b.Disclose in writing, at or before the recommendation, the limit on the funds it offers and the related conflicts✓
• c.Disclose the limit in the customer's annual account statement, since a general product menu is not a recommendation
• d.Stop recommending the proprietary funds, since a limited product menu cannot meet the standard even with disclosure

The disclosure obligation requires full and fair written disclosure, prior to or at the time of the recommendation, of material facts about the scope and terms of the relationship, including material limitations on the securities that may be recommended, and of conflicts of interest. The firm must also have policies to identify and disclose, or eliminate, the conflicts those limits create. A later annual notice is too late, a waiver does not remove the conflict obligation, and a limited menu is allowed when properly disclosed and managed.SEA Rule 15l-1(a)(2)(i)

A representative recommends eight trades in a retired customer's account within one quarter. Each trade looks reasonable in isolation, but together they generate commissions well above the account's usual activity and the customer's goal is to preserve capital. Which component of Regulation Best Interest is the main concern?

• a.The care obligation, because the series of transactions must not be excessive when taken together✓
• b.The compliance obligation, because the firm failed to file the series of trades with its regulator
• c.The disclosure obligation, because each trade needed its own written disclosure of commissions
• d.The conflict of interest obligation, because the representative earned a commission on each trade

The care obligation requires a reasonable basis to believe that a series of recommended transactions, even if in the customer's best interest in isolation, is not excessive and is in the customer's best interest taken together, given the investment profile and without putting the representative's interest first. Disclosure alone does not cure excessive trading. The compliance obligation concerns the firm's written policies, and earning a commission on each trade is the ordinary condition that the conflict policies address, not a feature that makes this series wrong.SEA Rule 15l-1(a)(2)(ii)(C)

A firm announces a quarterly contest in which the top sellers of its in-house fund earn an all-expenses-paid trip. Which statement reflects Regulation Best Interest?

• a.The firm may run the contest if it discloses the trip and the contest terms to customers in writing before any sale
• b.The firm may run the contest if each customer consents in writing to the conflict after hearing about the trip
• c.The firm must eliminate the contest, since disclosure and mitigation do not satisfy the rule for product contests✓
• d.The firm may run the contest if it mitigates the incentive by reviewing the top sellers' trades

Regulation Best Interest requires the broker-dealer to establish and enforce policies to identify and eliminate sales contests, sales 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, mitigation and customer consent are tools for other conflicts, but for these practices the rule calls for elimination.SEA Rule 15l-1(a)(2)(iii)(D)

A representative makes a securities recommendation to each of the following people. For which one does Regulation Best Interest apply?

• a.A woman investing savings for her daughter's college costs✓
• b.A partner investing the partnership's capital in the firm's name
• c.An accountant investing a client's funds on a client's behalf
• d.A corporation's treasurer investing the company's operating cash

A retail customer is a natural person, or that person's legal representative, who receives a recommendation and uses it primarily for personal, family or household purposes. Saving for a daughter's education is a family purpose. The treasurer and the partnership are investing for business entities, and the accountant is investing for a client's business, so those recommendations are not made to retail customers.SEA Rule 15l-1(b)(1)

Which statement about when Regulation Best Interest applies is correct?

• a.It applies when a broker-dealer recommends a securities transaction, strategy or account type to a retail customer✓
• b.It applies to recommendations of securities and strategies, but not to recommendations of the type of account to open
• c.It applies to fee-based advisory relationships, and not to commission-based accounts at a broker-dealer
• d.It applies to orders a retail customer places on the firm's platform, whether or not the firm made a recommendation

The best interest obligation applies when a broker-dealer or its associated person makes a recommendation of any securities transaction or investment strategy involving securities, including account recommendations, to a retail customer. It is not triggered by an unsolicited order, it does extend to account recommendations such as a rollover into a brokerage account, and it applies to commission-based brokerage relationships rather than being limited to advisory fees.SEA Rule 15l-1(a)(1)

A representative recommends a variable annuity with high annual costs to a customer with a modest income, a long time horizon and low liquidity needs. A similar product with lower costs is available to the representative. Under the care obligation, what must the representative have?

• a.A reasonable basis to believe the product is the lowest-cost one available in the market
• b.Written confirmation from the customer that the higher costs were explained and accepted
• c.A reasonable basis that the recommendation is in this customer's best interest given its costs✓
• d.A reasonable basis to believe the product could be in the best interest of at least some retail customers

The care obligation has several parts. Besides understanding the product and having a reasonable basis that it could be in the best interest of some retail customers, the representative must have a reasonable basis to believe it is in the best interest of the particular customer based on that customer's investment profile and the potential risks, rewards and costs, without putting his or her own interest first. The 'some customers' test is only the first step. A written confirmation of cost disclosure does not meet the care standard, and the rule does not require the cheapest product.SEA Rule 15l-1(a)(2)(ii)(B)

A firm is about to approve a new customer's account for trading listed options. By what point must the firm have delivered the current Options Disclosure Document (ODD) to that customer?

• a.At or before the time the account is approved for options trading✓
• b.With the confirmation of the customer's first options transaction
• c.Within 15 days after the account is approved, along with the signed options agreement
• d.Only when the customer first places an order to write an uncovered option

Rule 2360 requires delivery of the current ODD at or prior to the time the account is approved for trading OCC-issued options. The confirmation-time deadline is real, but it applies only to later amendments of a document the customer already holds. The 15-day period belongs to the account agreement and the verification of background information, not to the ODD.FINRA Rule 2360(b)(11)(A)(i) and (b)(16)(A)

A customer received the Options Disclosure Document when the account was approved. Later, the ODD is amended for a category of options the customer trades. When must the firm send the amendment?

• a.Not later than the time a confirmation is delivered for a transaction in the category of options the amendment covers✓
• b.Before the firm accepts any further options order from that customer
• c.Not at all, since delivery of the original document satisfied the requirement
• d.Within 30 days after the amendment is filed with the SEC

Each amendment must be distributed to customers who already received the ODD no later than the confirmation of a transaction in the affected category of options. Having delivered the original document does not end the duty. The rule sets no pre-order hold and no calendar-day deadline measured from the SEC filing.FINRA Rule 2360(b)(11)(A)(i)

A firm approves a new individual customer for options trading, and the customer's background and financial information is not already in the account agreement. Within how long must the firm send that information to the customer for verification?

• a.At the end of the quarter in which the account is approved
• b.Within 30 days after the account is approved for options trading by a principal
• c.Within 10 business days after the customer's first options trade
• d.Within 15 days after the account is approved for options trading✓

Verification must go out within 15 days after approval, and again within 15 days after the firm learns of a material change in the customer's finances. The customer is given the chance to correct or complete the information, and silence is treated as verification. A 30-day or quarter-end schedule is longer than the rule allows.FINRA Rule 2360(b)(16)(C)

A branch manager who is not a Registered Options Principal (ROP) or Limited Principal-General Securities Sales Supervisor approves a customer's options account. Within how long must the approval or disapproval be submitted to a qualified principal?

• a.Within 5 business days after the account is approved for trading
• b.Within 15 calendar days
• c.Within 10 business days✓
• d.By the end of the next quarter

When the branch manager lacks the ROP or Limited Principal-General Securities Sales Supervisor qualification, the decision must go to a person who has it within ten business days. The 15-day figure appears elsewhere in the rule, for verification of customer information and the account agreement, which makes it the tempting wrong answer here.FINRA Rule 2360(b)(16)(B)

FINRA's options rule restricts exercises of option contracts of a particular class. Over what period are a customer's exercises counted against the exercise limit?

• a.Any single trading day only
• b.Any five consecutive business days✓
• c.Any rolling period of 30 days, including weekends
• d.The calendar quarter in which the exercise falls

The exercise limit is measured by the number of contracts of one class exercised within any five consecutive business days, and it is tied to the position limit that applies to that class. It is not a one-day, monthly or quarterly measure.FINRA Rule 2360(b)(4)

Under FINRA's options rule, how often must a firm send account statements to a customer who has an open options position but had no entry in the account during the prior month?

• a.Once a year, with the year-end tax documents
• b.Only when the customer requests a statement in writing
• c.At least monthly, whether or not there was any account activity
• d.At least quarterly✓

Statements go out at least monthly to customers with an entry during the preceding month and at least quarterly to customers with an open option position or a money balance. A customer with an open position but no monthly activity therefore falls under the quarterly schedule. Monthly statements are required only when there was an entry, and an annual or on-request schedule is far too loose.FINRA Rule 2360(b)(15)(A)

A customer without a discretionary agreement gives a representative time-and-price discretion on an order for 5 XYZ calls. Unless the customer signs and dates a written statement saying otherwise, how long does that discretion remain in effect?

• a.For 30 days from the date it was granted
• b.Until the option expires
• c.Until the order is executed or cancelled, however many days that takes
• d.Until the end of the business day on which the customer granted it✓

Discretion over only the time or price of an order for a definite number of contracts in a specified security is not a full discretionary account. The rule limits it to the day it was granted unless the customer gives a signed, dated written instruction to the contrary, and any exercise must be shown on the order ticket.FINRA Rule 2360(b)(18)(A)(ii)

A registered representative recommends that a customer make an opening purchase of an option contract. In addition to general suitability, what must the representative reasonably believe at the time of the recommendation?

• a.That the customer has the knowledge and experience to evaluate the risks of the transaction and can financially bear them✓
• b.That the customer has already traded the same option class at least once
• c.That the customer's annual income exceeds $50,000
• d.That the customer has held a margin account for at least one year

For a recommended opening options transaction the representative needs a reasonable basis to believe the customer can evaluate the risks, because of knowledge and experience in financial matters, and is financially able to bear them. The rule sets no fixed income level, minimum account age or prior trade in the same class.FINRA Rule 2360(b)(19)(B)

Which of the following must a firm that writes uncovered short options for the public include in its written procedures?

• a.Specific minimum net equity requirements for initial approval and maintenance of accounts writing uncovered options✓
• b.A rule that no customer may write uncovered options for more than 90 days
• c.A fixed ceiling of 100 contracts for each uncovered writer
• d.A requirement that uncovered writers also hold the underlying stock in the account

The written procedures must include suitability criteria, written Registered Options Principal approval of accounts, designated ROPs for exceptions, specific minimum net equity requirements, and the special risk statement. Fixed time limits, a flat contract ceiling and a stock holding requirement are not part of the rule, and holding the stock would make the write covered rather than uncovered.FINRA Rule 2360(b)(16)(E)(ii) and (iv)

A customer wants a representative to exercise discretion over option trades in the customer's account. Which condition applies under FINRA's options rule?

• a.Any general discretionary authorization covers options without further mention
• b.The firm's branch manager may accept the account in writing even without an options qualification
• c.The customer's written authorization must specifically cover options, and a ROP or Limited Principal-General Securities Sales Supervisor must accept the account in writing✓
• d.The customer's verbal instruction is enough if the representative has traded for the customer for over a year

Discretion over options needs a written authorization that specifically mentions options trading and written acceptance by a qualified options principal. A general grant that is silent on options does not count, and long experience with the customer cannot replace the written authorization.FINRA Rule 2360(b)(18)(A)(i)

Under FINRA's options rule, where must a firm keep copies of an options customer's account statements for the most recent six-month period?

• a.At the clearing firm's office only
• b.At the branch office only
• c.At both the servicing branch office and the principal supervisory office with jurisdiction over it✓
• d.At FINRA's district office

Background and financial information, and statements for the most recent six months, must be kept at both the branch servicing the account and the principal supervisory office responsible for the branch, though the supervisory office copy may sit elsewhere if readily accessible. Neither FINRA nor a clearing firm is the designated custodian of these records.FINRA Rule 2360(b)(17)(B)

Which of the following must appear on a written confirmation of an options transaction under FINRA's options rule?

• a.The option's delta and implied volatility
• b.Whether the transaction was an opening or a closing transaction✓
• c.The customer's remaining position limit
• d.The exchange on which the option was executed and the name of the floor broker who filled the order

The confirmation must show the option type, underlying security, expiration month, strike, number of contracts, premium, commission, trade and settlement dates, buy or sell (write), opening or closing, and principal or agency capacity. It must distinguish listed from other transactions by a symbol but need not name the exchange, and Greeks or limit headroom are not required items.FINRA Rule 2360(b)(12)