FINRA Series 7 — All Questions

In a joint tenants with rights of survivorship (JTWROS) account, when one owner dies:

• a.The estate must immediately sell every security in the account and distribute the cash
• b.The deceased owner's interest passes automatically to the surviving owner(s)✓
• c.The account converts to a corporate account
• d.The account is frozen permanently

In a JTWROS account, the surviving owner automatically inherits the deceased owner's interest in the account, bypassing probate. This contrasts with tenants in common, where a deceased owner's share passes to that owner's estate according to their will or state law.

A custodial account established under the Uniform Transfers to Minors Act (UTMA) has which feature?

• a.There is one custodian and one minor, and the assets belong to the minor✓
• b.Two or more minors may be named together as equal co-owners of the single account
• c.The account may be opened and funded only by the minor's grandparent or other ancestor
• d.The custodian owns the assets personally

A UTMA account has a single custodian managing assets for a single minor, and the assets legally belong to the minor. The custodian manages the account for the minor's benefit and must act prudently; control transfers to the minor upon reaching the age of majority set by state law.

To exercise discretion in a customer's account, a registered representative must first obtain:

• a.Approval from the OCC
• b.A margin agreement
• c.Only a spoken verbal instruction from the customer for each individual trade beforehand
• d.Prior written authorization from the customer and firm approval of the account✓

Discretionary authority (choosing the security, the amount, or whether to buy or sell without consulting the client on each order) requires the customer's prior written authorization and the firm's written acceptance of the account. Each discretionary order must be marked as such and the account must be reviewed frequently by a principal.

Under Regulation T, the initial margin requirement for a purchase of marginable common stock is currently:

• a.25% of the purchase price
• b.50% of the purchase price✓
• c.100% of the purchase price
• d.10% of the purchase price

Regulation T, set by the Federal Reserve Board under the Securities Exchange Act of 1934, currently requires an initial margin deposit of 50% of the purchase price for marginable equity securities. The remaining amount may be borrowed from the broker-dealer through the margin account.Securities Exchange Act of 1934

A customer buys $20,000 of marginable stock in a margin account. Under Regulation T at 50%, how much must the customer deposit?

• a.$10,000✓
• b.$5,000
• c.$2,000
• d.$20,000

The Regulation T initial requirement of 50% applies to the $20,000 purchase, so the customer must deposit $10,000. The broker-dealer may lend the remaining $10,000, which becomes the debit balance in the margin account.Securities Exchange Act of 1934

FINRA's minimum maintenance margin requirement for a long stock position is:

• a.30% of the current market value, the requirement that applies to short stock positions
• b.50% of the current market value, the same percentage required at the initial purchase
• c.25% of the current market value✓
• d.100% of the current market value, as with a cash account purchase

FINRA Rule 4210 requires equity in a long margin account to stay at or above 25% of the current market value of the securities, and falling below it triggers a maintenance call. Fifty percent is the initial Regulation T deposit, not the maintenance level. One hundred percent is the full payment required in a cash account. Thirty percent is the maintenance level for short stock positions, not long ones.

A customer holds long stock with a current market value of $40,000 and a debit balance of $32,000. Using the 25% maintenance requirement, what is the status of the account?

• a.A maintenance call is triggered because equity of $8,000 is below the $10,000 required✓
• b.No call; equity of $8,000 equals 25% of the $32,000 debit balance
• c.A $12,000 call, because equity is below the 50% Regulation T requirement
• d.No call; equity of $8,000 is well above the $2,000 minimum equity

Equity equals market value minus the debit balance: $40,000 - $32,000 = $8,000. The 25% maintenance requirement is measured on the $40,000 market value, so $10,000 is required. Equity of $8,000 is $2,000 short, and a maintenance call is triggered. Taking 25% of the debit balance uses the wrong base, which would give exactly $8,000 and no call. The 50% figure is the initial Regulation T requirement, not the maintenance requirement, so a $12,000 call is wrong. The $2,000 minimum equity is a separate minimum and does not replace the 25% maintenance test.

In a short margin account, the customer profits when:

• a.The price of the borrowed and sold security declines✓
• b.The shorted stock pays a cash dividend while the position is open
• c.The shorted stock rises above the sale price
• d.A long position held in the account increases

A short seller borrows shares, sells them, and hopes to buy them back later at a lower price, so the position profits when the security's price declines. A rise above the sale price produces a loss, and because a price can rise without limit the potential loss is unlimited. A dividend paid while the position is open is a cost to the short seller, who must reimburse the lender. A gain on a long position in the account does nothing for the short position.

A traditional Individual Retirement Account (IRA) offers which primary tax feature?

• a.After-tax contributions that grow tax-deferred, with tax-free withdrawals of both contributions and earnings
• b.Potentially tax-deductible contributions with tax-deferred growth until withdrawal✓
• c.Tax-deductible contributions with no annual dollar limit, as long as the owner has earned income
• d.Tax-deferred growth with penalty-free withdrawals at any age and no required minimum distributions

Traditional IRA contributions may be deductible depending on income and workplace plan coverage, and earnings grow tax-deferred until withdrawal, when they are taxed as ordinary income. After-tax funding with tax-free qualified withdrawals describes a Roth IRA. A traditional IRA has an annual contribution limit, so deductible contributions are not unlimited. Required minimum distributions apply and early withdrawals before age 59 1/2 are generally penalized, so penalty-free access at any age with no required distributions is wrong.26 U.S.C. 219 and 408(a)

A Roth IRA differs from a traditional IRA primarily because a Roth:

• a.Requires the original owner to begin required minimum distributions at age 73 or later
• b.Has a higher annual contribution limit than a traditional IRA
• c.Is funded with after-tax dollars, and qualified withdrawals are tax-free✓
• d.Allows contributions to be deducted from income in the year they are made

Roth IRA contributions are made with after-tax dollars and are not deductible, but qualified distributions of contributions and earnings are tax-free if the five-year holding period is met and the owner is at least 59 1/2. A Roth IRA is not subject to required minimum distributions during the original owner's lifetime, so a starting age such as 73 does not apply. The annual limit is not higher for a Roth, because it is shared with traditional IRAs. Deducting contributions is the traditional IRA's feature, and none is allowed for a Roth.26 U.S.C. 408A

A withdrawal from a traditional IRA before age 59 1/2 is generally subject to:

• a.Ordinary income tax plus a 10% early withdrawal penalty, unless an exception applies✓
• b.A 10% additional tax only, with no ordinary income tax due on the amount
• c.Ordinary income tax only, because the 10% additional tax applies just to Roth IRAs
• d.Long-term capital gains rates plus a 25% additional tax on the amount withdrawn

Early distributions from a traditional IRA taken before age 59 1/2 are generally taxed as ordinary income and also carry a 10% additional tax under Section 72(t), unless an exception applies. The 10% tax is added to ordinary income tax, not substituted for it, and it is not limited to Roth IRAs. Capital gains rates do not apply to IRA distributions, and the 25% rate is limited to certain SIMPLE IRA withdrawals made soon after joining. Exceptions such as qualified first-home purchases, higher education or disability may waive the penalty but not the ordinary income tax.26 U.S.C. 72(t)

A 401(k) plan is a type of:

• a.Employer-sponsored defined benefit plan insured by the PBGC
• b.IRA opened and funded by the employee alone
• c.Tax-sheltered annuity plan for public school employees
• d.Employer-sponsored defined contribution retirement plan✓

A 401(k) is an employer-sponsored defined contribution plan in which employees defer part of their salary, often with an employer match, and the benefit depends on contributions and investment results. A defined benefit plan promises a set payout and is the type insured by the PBGC. An IRA opened and funded by the employee alone has no employer sponsor. A tax-sheltered annuity plan for public school employees is a Section 403(b) plan, a different plan type. ERISA governs these workplace plans.26 U.S.C. 401(k)

Under Regulation Best Interest (Reg BI), when a broker-dealer makes a recommendation to a retail customer, it must:

• a.Act as an Advisers Act fiduciary and monitor the account continuously
• b.Recommend the lowest-cost product available in every case
• c.Act in the retail customer's best interest and not place its own interests ahead of the customer's✓
• d.Satisfy FINRA's suitability test alone, since matching the stated objective is enough

Rule 15l-1(a)(1) requires a broker-dealer, when recommending a securities transaction or strategy to a retail customer, to act in the customer's best interest at the time the recommendation is made, without placing its own financial or other interest ahead of the customer's. This is satisfied through the disclosure, care, conflict-of-interest and compliance obligations. It is not the Advisers Act fiduciary duty and does not by itself create a continuing duty to monitor the account. It does not require the cheapest product, because cost is one factor weighed with the customer's investment profile, and matching a stated objective is not enough on its own.17 CFR 240.15l-1(a)(1)

When determining whether a recommendation is suitable, a registered representative must consider the customer's:

• a.Investment objectives, financial situation, risk tolerance, and time horizon✓
• b.Favorite industries only
• c.Zip code and gender
• d.The firm's current inventory needs and its goal of reducing unwanted proprietary positions

Suitability and the care obligation under Reg BI require the representative to understand the customer's investment profile, including objectives, financial situation and needs, risk tolerance, time horizon, liquidity needs, and experience. Recommendations must fit that profile rather than the firm's interests.

Before a customer may trade options, the firm must:

• a.Obtain the customer's signed options agreement before approval and mail the options disclosure document with the first trade confirmation
• b.Obtain approval from a designated options principal and deliver the options disclosure document (ODD) at or before account approval✓
• c.Obtain approval from the customer's registered representative alone and deliver the options disclosure document within 15 days of approval
• d.Verify $2,000 of account equity and send the ODD after approval

Opening an options account requires approval by a Registered Options Principal based on the customer's suitability information, and the options disclosure document must be furnished at or before approval. The signed options agreement is due within 15 days after approval, so it need not come first, and disclosure with the first confirmation is too late. Approval by the representative alone is not enough. A $2,000 equity figure is a margin-account minimum, not an options approval test, and the firm can never guarantee a customer against loss.

A tenants in common (TIC) account differs from JTWROS because in a TIC account:

• a.The account cannot hold securities
• b.Both owners must have equal percentage interests
• c.Only one owner may enter orders
• d.A deceased owner's fractional interest passes to that owner's estate, not automatically to the co-owner✓

In tenants in common, each owner holds a divided fractional interest, which need not be equal, and upon death that interest passes to the owner's estate rather than automatically to the surviving co-owner. JTWROS, by contrast, provides automatic survivorship to the surviving owner.

A customer buys stock in a cash account for $10,000 with the intent to pay for it by selling the same securities before paying. This practice is known as and prohibited as:

• a.Freeriding, which violates Regulation T✓
• b.Trading on margin, which Regulation T bars for cash accounts
• c.Churning, which violates the antifraud provisions of the Exchange Act
• d.A short sale against the box, which violates Regulation SHO

Freeriding occurs when a customer buys securities in a cash account and sells them without paying for the purchase, using sale proceeds to cover it. Regulation T answers with a 90-day freeze on the privilege of delaying payment, so purchases must be paid in full up front. Trading on margin is not what is described, because the customer is not borrowing from the firm. Churning is excessive trading to generate commissions and has nothing to do with payment. A short sale against the box involves an existing long position and is not about paying for a purchase.12 CFR 220.8(c)

A Coverdell Education Savings Account (ESA) is designed primarily to:

• a.Allow after-tax contributions to grow tax-free for qualified education expenses✓
• b.Allow deductible contributions to reduce taxable income for education costs
• c.Allow after-tax contributions of up to $20,000 per year for education
• d.Provide tax-free growth through a state-run plan open to any adult donor

A Coverdell ESA lets contributors make nondeductible (after-tax) contributions that grow tax-free, with tax-free withdrawals when used for qualified education expenses. Contributions are not deductible, so the deduction description fails. The annual limit is $2,000 per beneficiary, far below $20,000. A state-run plan that any adult can fund describes a 529 plan, not a Coverdell account, which has income phase-outs for contributors.26 U.S.C. 530

A 529 college savings plan offers which key tax advantage?

• a.Tax-deferred growth and tax-free withdrawals when used for qualified education expenses✓
• b.A federal income tax deduction for every contribution, up to the annual gift tax exclusion
• c.A state guarantee against loss of principal
• d.Tax-free withdrawals for any purpose after five years

A 529 plan provides tax-deferred growth and federal-tax-free withdrawals when funds are used for qualified education expenses; some states also offer a state tax deduction. There is no federal deduction for contributions. The plan carries market risk and no one guarantees against loss of principal. Earnings withdrawn for other purposes are taxed and generally face an additional penalty, so withdrawals are not tax-free for any purpose.26 U.S.C. 529

When a customer opens a new account, the registered representative is generally required to:

• a.Verify the customer's identity and have the registered representative alone approve the account
• b.Collect the customer's tax returns and obtain approval of the account from FINRA staff
• c.Obtain essential facts about the customer and have a principal approve the account✓
• d.Collect essential facts only when the customer intends to trade on margin or sell short

Firms must gather essential facts about each customer at account opening, including identity, financial background and investment objectives, and a principal must review and approve the new account. The representative cannot approve the account alone, and approval comes from the firm's principal rather than FINRA staff. The facts are required for every account, not only margin or short-selling accounts, because they support suitability, Reg BI and know-your-customer duties.

In a margin account, the credit agreement, hypothecation agreement, and (optionally) the loan consent form together permit the firm to:

• a.Extend credit, take a lien on the customer's securities, and (with consent) lend out those securities✓
• b.Extend credit, lend out the customer's fully paid securities, and pledge them without any further consent
• c.Take a lien on the customer's securities, lend them out (with consent), and waive the Regulation T initial requirement
• d.Extend credit, reduce the maintenance requirement to 15%, and pledge only fully paid securities

The credit (margin) agreement sets the terms of the loan, the hypothecation agreement lets the firm pledge the customer's securities as collateral, and the optional loan consent allows the firm to lend them to others. Together they let the firm extend credit, take a lien and, with consent, lend. They do not allow lending or pledging fully paid securities without further consent, they do not waive the Regulation T initial requirement, and they do not cut the maintenance requirement to 15%.

A pattern day trader is generally required to maintain minimum equity in a margin account of at least:

• a.$25,000✓
• b.$10,000
• c.$2,000
• d.$100,000

FINRA rules require an account designated as a pattern day trading account (four or more day trades within five business days meeting the threshold) to maintain minimum equity of at least $25,000. This amount must be in the account before day trading may continue and provides an added cushion for the frequent intraday activity.Securities Exchange Act of 1934

A required minimum distribution (RMD) from a traditional IRA generally must begin:

• a.At age 59 1/2, when penalty-free withdrawals from the account first become available
• b.At age 70 1/2, the starting age that applied before the SECURE Act
• c.At the RMD age set by current tax law, after which annual distributions are required✓
• d.At retirement from the owner's last employer, whatever the owner's age

Traditional IRAs require the owner to begin required minimum distributions at the RMD age set by current tax law, which is 73 or 75 depending on birth year under SECURE 2.0. Failing to take the full RMD results in a tax penalty on the shortfall. Age 59 1/2 only ends the early-withdrawal penalty and forces nothing. Age 70 1/2 was the starting age before the SECURE Act. Retirement can delay distributions from an employer plan but has no effect on an IRA. Roth IRAs are not subject to RMDs during the original owner's lifetime.26 U.S.C. 408(a)(6) and 401(a)(9)

A customer's investment objective of 'capital preservation' would best be served by recommending:

• a.Highly leveraged limited partnerships and speculative oil-and-gas drilling programs
• b.Uncovered option writing
• c.Speculative small-capitalization growth stocks that carry high price volatility
• d.High-quality short-term debt instruments and money market securities✓

A capital preservation objective prioritizes protecting principal over growth, favoring high-quality, short-term, liquid instruments such as Treasury bills and money market securities. Speculative equities and leveraged or uncovered option strategies carry too much risk of loss for this objective.

A customer with a long-term retirement horizon and a growth objective, comfortable with volatility, would most suitably be recommended:

• a.A diversified portfolio weighted toward equities✓
• b.All of the account's assets placed into one single speculative growth stock
• c.Only short-term U.S. Treasury bills held all the way to their maturity dates
• d.Only short-term bank certificates of deposit held until they fully mature

A long time horizon combined with a growth objective and tolerance for volatility supports an equity-weighted, diversified portfolio, which historically offers higher long-term returns. Concentrating in a single stock violates diversification principles, while holding only short-term instruments would not meet the growth objective.

A customer buys $30,000 of marginable stock in a margin account meeting the Reg T 50% requirement. If the market value later rises to $40,000, the equity in the account is:

• a.$40,000
• b.$15,000
• c.$25,000✓
• d.$20,000

At purchase the customer deposits 50% of $30,000 = $15,000 equity and borrows $15,000 (the debit balance, which stays fixed). Equity always equals market value minus the debit: $40,000 - $15,000 = $25,000. Trap: $15,000 is the original equity and also the unchanged debit, not the current equity; $40,000 is the market value, not the equity; $20,000 has no basis in the account's figures.Regulation T, 12 CFR 220.12 (50 percent initial margin)

Under Regulation T, which of the following must generally be purchased for cash rather than on margin at initial purchase?

• a.Common stock listed on the NYSE that trades above five dollars per share
• b.New issues (for roughly the first 30 days) and standard listed options✓
• c.Shares listed on the Nasdaq Stock Market and exchange-listed corporate bonds
• d.U.S. Treasury notes and other exempted securities such as municipal bonds

A broker-dealer that sold in the distribution of a new issue may not extend credit on it for 30 days (Exchange Act Section 11(d)(1)), and standard listed options are not margin securities under Regulation T, so both are bought for cash. Exchange-listed stock, Nasdaq-listed stock, exchange-listed bonds and exempted securities such as Treasury and municipal bonds are all marginable, so their purchase may be financed.Regulation T, 12 CFR 220.2 (definition of margin security); Exchange Act Section 11(d)(1), 15 U.S.C. 78k(d)(1)

FINRA rules direct firms, at account opening, to make a reasonable effort to obtain the name of a 'trusted contact person' primarily to:

• a.Grant that person authority to place trades in the account
• b.Guarantee the account against investment loss
• c.Make that person a co-owner of the account
• d.Help the firm respond to suspected financial exploitation or diminished capacity, especially for senior investors✓

Under FINRA Rules 4512 and 2165, the trusted contact lets a firm reach someone if it suspects financial exploitation or diminished capacity, and it may place a temporary hold on suspicious disbursements. The trusted contact receives no trading authority and no ownership interest, ruling out choices a and c.FINRA Rule 4512

A customer buys $24,000 of marginable stock in a margin account. Under Regulation T at 50%, how much must the customer deposit?

• a.$6,000
• b.$24,000
• c.$12,000✓
• d.$2,000

Regulation T (Federal Reserve, under the Securities Exchange Act of 1934) requires a 50% initial deposit on marginable equities: 50% x $24,000 = $12,000. The broker-dealer may lend the remaining $12,000, which becomes the debit balance.

A customer's long margin account shows a market value of $60,000 and a debit balance of $40,000. Using the 25% maintenance requirement, the account is:

• a.Not subject to a call; equity of $20,000 exceeds the $15,000 minimum✓
• b.Subject to a maintenance call of $5,000
• c.Subject to an immediate maintenance call for $2,000 because the account's equity has dropped beneath the required level
• d.Exactly at the requirement with no excess

Equity = market value - debit = $60,000 - $40,000 = $20,000. Minimum maintenance = 25% x $60,000 = $15,000. Because $20,000 equity exceeds $15,000, no maintenance call is triggered and the account has a $5,000 cushion (FINRA maintenance rule).

A customer's long margin account has a debit balance of $18,000. At what market value would a maintenance call be triggered under the 25% requirement?

• a.$60,000
• b.$13,500
• c.$24,000✓
• d.$18,000

A long account hits the maintenance minimum when equity = 25% of market value, i.e., market value = debit / 0.75 = $18,000 / 0.75 = $24,000. Below $24,000 in market value, equity falls under 25% and a maintenance call is issued.

A customer sells short $30,000 of stock and meets the Reg T 50% requirement. If the stock's market value later rises to $35,000, the equity in the short account is:

• a.$10,000✓
• b.$5,000
• c.$15,000
• d.$45,000

The credit balance = short sale proceeds + Reg T deposit = $30,000 + $15,000 = $45,000 (fixed). Equity in a short account = credit balance - current short market value = $45,000 - $35,000 = $10,000. Rising prices reduce a short seller's equity.

FINRA's minimum maintenance requirement for a short stock position is:

• a.35% of the short market value
• b.50% of the short market value
• c.25% of the short market value
• d.30% of the short market value✓

For short positions FINRA requires maintenance equity of at least 30% of the current market value of the securities sold short, higher than the 25% used for long positions because a short's loss potential is unlimited as prices rise.

A short margin account has a credit balance of $45,000. A maintenance call would be triggered when the short market value rises to approximately:

• a.The credit balance divided by 1.30, about $34,615✓
• b.Equal to the credit balance, $45,000
• c.Zero
• d.The credit balance divided by 0.75

A short account reaches the 30% maintenance minimum when equity = 30% of short market value, i.e., short market value = credit balance / 1.30 = $45,000 / 1.30 = about $34,615. Above that value, equity falls below 30% and a call is issued.

A long margin account has a market value of $50,000 and a debit balance of $20,000. How much SMA (excess equity) does the account have?

• a.$10,000
• b.$5,000✓
• c.$25,000
• d.$30,000

Equity = $50,000 - $20,000 = $30,000. The Regulation T requirement is 50% x $50,000 = $25,000. SMA (special memorandum account / excess equity) = equity - Reg T requirement = $30,000 - $25,000 = $5,000.

An account has $5,000 of SMA. Under Regulation T at 50%, the additional buying power this SMA provides is:

• a.$2,500
• b.$10,000✓
• c.$5,000
• d.$20,000

Buying power = SMA / Reg T rate = $5,000 / 0.50 = $10,000. Each dollar of SMA supports two dollars of new marginable stock because the customer need only post 50% of the purchase. Multiplying by 50% halves the figure instead of doubling it, treating SMA as dollar-for-dollar ignores that the loan covers half, and dividing by the 25% maintenance rate uses the wrong requirement.Regulation T, 12 CFR 220.12 (50 percent initial margin)

To open a margin account, a customer must generally deposit minimum equity of:

• a.$2,000, or 100% of the purchase price if the purchase is less than $2,000✓
• b.$5,000, the minimum the Federal Reserve sets under Regulation T for any new margin account
• c.50% of the purchase price, with no dollar minimum at all
• d.$25,000, the minimum equity that FINRA requires in every margin account

FINRA rules require minimum equity of $2,000 to open a margin account, but a customer is never required to deposit more than 100% of the purchase price. Regulation T sets the 50% initial requirement but no dollar minimum, so neither a $5,000 Federal Reserve minimum nor a bare 50% rule is the answer. The $25,000 figure belonged to the pattern day trading rule, not to opening an account, and FINRA has since eliminated that rule.

Under Regulation T, standard listed options with nine months or less to expiration:

• a.Must be paid for in full because such options are not marginable✓
• b.Are entirely exempt from Regulation T and may be carried in the account with no deposit whatsoever
• c.Require only a 25% deposit
• d.May be purchased on 50% margin

Listed options with nine months or less until expiration are not marginable and must be paid for in full under Regulation T. Only long-term options (LEAPS with more than nine months) may be purchased on margin, at a higher requirement.

A pattern day trader must maintain minimum equity in the margin account of at least:

• a.$25,000✓
• b.$10,000
• c.$100,000
• d.$2,000

FINRA rules require an account flagged as a pattern day trading account (four or more day trades within five business days meeting the threshold) to keep minimum equity of $25,000, which must be in the account before day trading may continue.

A customer buys $10,000 of marginable stock in a new margin account. The Regulation T call amount is:

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

The Regulation T initial requirement is 50% of the purchase: 50% x $10,000 = $5,000. The customer deposits $5,000 and the firm may lend the remaining $5,000 as the debit balance.

A transfer on death (TOD) registration on an individual brokerage account:

• a.Freezes the account during the owner's lifetime
• b.Is available only for retirement plans
• c.Lets account assets pass directly to named beneficiaries at death, avoiding probate, while the owner keeps full control during life✓
• d.Immediately makes each named beneficiary a current co-owner of the account with full authority to place trades during the owner's lifetime

A TOD designation names beneficiaries who receive the account at the owner's death without probate, but the beneficiaries have no rights and no control while the owner is alive. The owner may change the beneficiaries or trade freely at any time.

To open a corporate cash account, a firm generally must obtain:

• a.The personal income tax return of the chief executive officer along with a signed statement of that officer's personal net worth
• b.Nothing beyond a verbal approval from an officer
• c.A corporate resolution or authorization identifying who is empowered to trade for the corporation✓
• d.A margin agreement in every case

A corporate account requires documentation, typically a corporate resolution or account authorization, naming the individuals authorized to act on the corporation's behalf. Margin trading by a corporation additionally requires that the charter or bylaws permit it.

In a trust account, the person who enters transactions must:

• a.Provide no documentation to the firm
• b.Let the beneficiary place all trades
• c.Avoid holding any marketable securities, since trust accounts are legally restricted to holding cash and bank deposits only
• d.Act as a fiduciary, following the trust document and the prudent-investor standard✓

The trustee is a fiduciary who must manage the account solely for the beneficiaries' benefit, in accordance with the trust instrument and applicable prudent-investor standards. The firm obtains the trust documents to confirm the trustee's authority and any investment limits.

A 'numbered' or 'street name' confidentiality-titled account:

• a.Requires a signed written statement of ownership kept on file by the firm✓
• b.Needs no owner identification
• c.Is functionally the same as a fully anonymous numbered account for which the firm keeps no record of ownership at all
• d.Is illegal under all circumstances

A firm may title an account by number or symbol for privacy, but the customer must sign a written statement attesting to ownership, which the firm retains. The customer's true identity is fully known to the firm; it is not anonymous.

A registered representative chooses only the price or time at which to execute an order the customer has already specified (as to security, amount, and buy/sell). This authority:

• a.Is not considered 'discretion' and does not require prior written authorization✓
• b.Is a prohibited practice
• c.Requires prior written discretionary authority like full discretion
• d.Makes the account permanently discretionary

Selecting only the price and/or time of execution for an otherwise fully specified customer order is 'time and price discretion' and is not treated as discretionary trading, so no written discretionary authorization is required. Choosing the security, amount, or whether to buy or sell would require written discretion.

A gift made into a UTMA custodial account is:

• a.Owned by the custodian personally
• b.Fully revocable by the donor at any time, allowing the contributed assets to be returned to the donor on demand
• c.Permitted to be traded on margin
• d.An irrevocable gift belonging to the minor, managed by one custodian until the minor reaches the age of majority✓

Contributions to a UTMA account are irrevocable gifts that legally belong to the minor; the single custodian manages the assets prudently for the minor's benefit until control transfers at the state's age of majority. Custodial accounts are cash accounts and cannot trade on margin.

To open an account for a general partnership, the firm generally requires:

• a.A corporate charter and set of bylaws identifying the specific officers who are authorized to act for the entity
• b.No documentation at all
• c.A trust indenture
• d.A partnership agreement identifying who is authorized to trade for the partnership✓

A partnership account requires a copy of the partnership agreement, which names the partners authorized to transact and any limits on their authority, so the firm can confirm who may act for the partnership.

Under the 60-day rollover rule for retirement accounts:

• a.The deadline is 90 days
• b.Funds distributed from a retirement plan must be redeposited into another qualifying plan within 60 days to avoid current tax and penalty✓
• c.The deadline is 30 days
• d.There is no fixed time limit to redeposit distributed retirement funds, provided the owner eventually rolls the money into another qualified plan

In an indirect (60-day) rollover, the account owner receives the distribution and must redeposit it into another qualifying retirement account within 60 days, or the amount becomes taxable (and possibly penalized). Only one such rollover is generally permitted per 12-month period per individual.

A SEP IRA is best described as:

• a.A simplified employer-sponsored plan funded by employer contributions to employees' IRAs✓
• b.The same as a Roth IRA
• c.A plan funded only by employee pre-tax salary deferrals, with no employer contributions permitted under the plan rules
• d.A federal government pension plan

A Simplified Employee Pension (SEP) IRA lets an employer (including a self-employed person) make tax-deductible contributions directly into IRAs established for eligible employees. Contributions come from the employer, and the accounts are owned by the employees.

A direct (trustee-to-trustee) transfer between retirement accounts is:

• a.Always treated as a fully taxable distribution that must be reported to the IRS in the year of the transfer
• b.Subject to a 10% penalty
• c.Not limited in frequency and is not a taxable event✓
• d.Limited to once every 12 months

In a direct trustee-to-trustee transfer, funds move between custodians without the owner taking possession, so it is not a taxable distribution and there is no limit on how often it may be done. The once-per-year limit applies to indirect 60-day rollovers, not direct transfers.