FINRA SIE — Securities Industry Essentials — All Questions

Which event is an example of unsystematic (company-specific) risk?

• a.The dollar strengthens against major currencies
• b.A drug maker's only approved product is recalled by the FDA✓
• c.The Federal Reserve raises short-term interest rates
• d.A recession reduces consumer spending nationwide

A product recall affects one company and can be reduced by diversifying across issuers, so it is unsystematic risk. Recessions, Fed rate changes, and currency moves touch most securities at once, which makes them systematic risks that diversification cannot remove.

An investor holds mutual fund shares for ten years. Which cost does the fund charge every year during that time?

• a.A redemption fee, charged on each year's gain
• b.A brokerage commission on every dividend reinvested
• c.A front-end sales load, charged again on each anniversary
• d.The expense ratio, deducted from fund assets✓

The expense ratio covers management and operating costs and is deducted from fund assets every year the investor holds shares. A front-end sales load is paid once, at purchase. A redemption fee, where one exists, applies only when shares are sold. Reinvested dividends are normally purchased without a commission.

Which statement about ETFs (exchange-traded funds) is correct?

• a.Investors buy ETF shares directly from the fund at the NAV
• b.ETF shares trade on an exchange throughout the day at changing prices✓
• c.ETF shares are priced once a day at the NAV set after the market close
• d.Only institutions may trade ETF shares, in creation units

ETFs trade on exchanges all day at market prices that can differ from NAV, just like stocks. Pricing once a day at the closing NAV, and buying directly from the fund, describe traditional mutual funds. Creation units are used by authorized participants, but retail investors buy and sell ordinary ETF shares through a broker.

During the accumulation phase of a variable annuity, the owner's contributions purchase:

• a.Annuity units that pay a fixed monthly benefit
• b.Mutual fund shares the owner holds directly
• c.Fixed-rate contracts in the insurer's general account
• d.Accumulation units of separate-account subaccounts✓

A variable annuity owner's payments buy accumulation units in separate-account subaccounts, whose value rises and falls with the investments. Annuity units are used in the payout phase. The insurer's general account backs fixed annuities. The subaccounts are insurance company accounts and the owner does not hold fund shares directly.

A put option has a $75 strike while the underlying stock trades at $68. This put is:

• a.Out of the money, as the stock is below $75
• b.At the money, with no intrinsic value
• c.In the money, with $68 of intrinsic value
• d.In the money, with $7 of intrinsic value✓

A put is in the money when the stock trades below the strike. Intrinsic value is strike minus stock: $75 - $68 = $7. A put is out of the money when the stock is above the strike, and at the money only when the two are equal. The stock price itself is not the intrinsic value.

XYZ declares a $2 per-share cash dividend with a record date of Friday. An investor buys 100 shares on Thursday. Is the investor entitled to the dividend under current T+1 settlement?

• a.Yes, but only if the investor holds the shares through the payable date
• b.No; the stock went ex-dividend two business days before the record date
• c.No; the buyer must have owned the shares on the declaration date
• d.Yes; the trade settles on the Friday record date, so the investor receives $200✓

With T+1 settlement a Thursday purchase settles on Friday, so the buyer is the holder of record on the record date. For a regular cash dividend the ex-dividend date is now the same as the record date, not two days earlier, so a purchase before that date earns the dividend: 100 x $2 = $200. Ownership on the declaration date or the payable date is not required.FINRA Rule 11140

Reinvestment risk is the risk that:

• a.A bond's price falls as market interest rates increase
• b.New income must be reinvested at a lower rate✓
• c.The issuer defaults before the principal is repaid
• d.A company cuts its common stock dividend in a downturn

Reinvestment risk affects investors who must put coupon payments or principal back to work when market rates have fallen, so the new income is lower. A price decline from rising rates is interest rate risk. An issuer default is credit risk. A dividend cut is a business risk of owning the stock.

MNO stock trades at $34, and a customer wants to buy it only if the price falls to $31. Which order fits?

• a.A sell limit order at $31
• b.A buy limit order at $31✓
• c.A market order, good for the day
• d.A buy stop order at $31

A buy limit order at $31 can be filled only at $31 or lower, which matches the customer's goal. A buy stop is placed above the market and becomes a market order when the stock rises to the stop price, so it does not fit a price below the market. A sell limit order is a sale. A market order would fill immediately near $34.

An investor owns ABC stock trading at $75 and wants protection if the price falls further, without selling now. Which order fits?

• a.A sell stop order at $70✓
• b.A buy stop order at $70
• c.A sell limit order at $70
• d.A sell limit order at $80

A sell stop order below the market becomes a market order if the stock trades down to $70, which caps the loss. A sell limit order at $70 sits below the current $75 price and would fill at once, selling the stock now. A buy stop order is for buying, and a sell limit at $80 waits to sell at a higher price, which gives no downside protection.

In a quoted market, the bid-ask spread is:

• a.The fee the exchange charges to match each order
• b.The gap between a limit price and the execution price
• c.The gap between the dealer's bid and ask prices✓
• d.The difference between the day's high and low prices

The bid is what a dealer will pay and the ask is what the dealer will accept, so the spread is the difference between them and is a source of dealer compensation. The daily range compares high and low trades. An exchange fee is a separate charge. The gap between a limit price and the fill price is price improvement or slippage, not the spread.

A market maker quotes XYZ stock at a bid of $25.00 and an ask of $25.05. Which statement is correct?

• a.The dealer buys at $25.00 and sells to customers at $25.05✓
• b.The dealer sells at $25.00 and buys from customers at $25.05
• c.The customer may choose which of the two prices to use
• d.The dealer trades with customers at the midpoint, $25.025

The bid is the price at which the dealer buys, and the ask is the price at which the dealer sells. A customer selling to the dealer receives $25.00, and a customer buying pays $25.05. Reversing the two would have the dealer buying above its selling price. Trades do not occur at the midpoint, and the customer cannot choose the price.

A stock trade is executed on a Monday. Under current SEC rules, regular-way settlement occurs on:

• a.Thursday (T+3)
• b.Monday (same day)
• c.Wednesday (T+2)
• d.Tuesday (T+1)✓

Since May 28, 2024, SEC Rule 15c6-1 sets regular-way settlement of most securities transactions at the first business day after the trade date (T+1), so a Monday trade settles on Tuesday. T+2 and T+3 were earlier standards. Same-day settlement is possible only by agreement at the time of the trade.SEC Rule 15c6-1

Under SEC Rule 10b-10, a broker-dealer must give or send a customer written confirmation of a trade:

• a.With the monthly account statement
• b.At or before completion of the transaction✓
• c.Only when the customer requests it in writing
• d.Within 30 days after the trade date

Rule 10b-10 requires written confirmation at or before completion of the transaction, which is the settlement of the trade. It is not optional, and the customer does not have to ask. A monthly statement does not replace the trade-by-trade confirmation, and a 30-day delay would come long after settlement.SEC Rule 10b-10

A customer deposits $10,000 cash in a new margin account and buys marginable stock. Under Regulation T, how much can the customer borrow from the firm?

• a.$20,000, for a $30,000 purchase
• b.$30,000, for a $40,000 purchase
• c.$10,000, for a $20,000 total purchase✓
• d.$5,000, for a $15,000 purchase

Regulation T sets initial margin at 50% of the purchase price, so the customer's $10,000 supports a $20,000 purchase with a $10,000 loan. Borrowing $20,000 would put the customer's share at one-third. Borrowing $5,000 under-uses the 50% rule. A $30,000 loan would reflect the 25% maintenance level, which does not apply to initial purchases.Regulation T, 12 CFR 220.12

Stock in a customer's margin account falls, and the equity drops below the 25% maintenance requirement. The firm will call for:

• a.Immediate repayment of the entire debit balance owed to the firm
• b.Written consent from the customer to sell the shares
• c.Enough cash or securities to restore the required equity✓
• d.Cash equal to the entire decline in the stock's market value

When equity falls below the maintenance requirement (25% of market value for long stock under FINRA Rule 4210), the firm issues a maintenance call for enough cash or securities to bring equity back up to the requirement. The customer does not have to repay the whole loan. The call is for the shortfall, not the full decline in value. The margin agreement already lets the firm sell if the call is not met, so separate consent is not required.FINRA Rule 4210

A broker-dealer that acts as a principal in an over-the-counter trade:

• a.Holds customer securities for safekeeping and earns custody fees
• b.Trades for its own account and earns a markup or markdown✓
• c.Matches the buyer with a seller and charges a flat commission
• d.Acts as the issuer's selling agent and earns a placement fee

A principal is a party to the trade, buying from or selling to the customer out of its own inventory, and is paid through a markup or markdown. Matching two customers for a commission is agency. Custody is a separate service, and selling a new issue for an issuer is an underwriting or placement function.

Before accepting a customer's order to sell short, a broker-dealer must first:

• a.Confirm that the customer owns the same shares in a cash account
• b.Have reasonable grounds to believe the shares can be borrowed✓
• c.Obtain the issuer's written consent to the short sale
• d.Place the sale proceeds in escrow with the SEC

Regulation SHO requires a locate: reasonable grounds to believe the security can be borrowed and delivered on the settlement date. No consent from the issuer is needed, and the proceeds are not sent to the SEC. A customer who already owns the shares would be selling long, not short.SEC Regulation SHO Rule 203(b)

An investor owns 100 shares of QRS, which pays a regular cash dividend with a Friday record date. The investor sells all 100 shares on Friday, the ex-dividend date. Who is entitled to the dividend?

• a.The buyer, because the sale occurred before the payable date
• b.The seller, who is still the holder of record on the record date✓
• c.The buyer, because the sale settles after the record date
• d.Both of them, in proportion to the days each owned the stock

For a regular cash dividend the ex-dividend date equals the record date, and a Friday sale settles the next business day (T+1), after the record date. The seller is therefore still the holder of record and receives the dividend, because the buyer purchased on or after the ex-date. Settlement after the record date does not give the buyer the dividend, the payable date is irrelevant to entitlement, and dividends are not prorated.FINRA Rule 11140

Under FINRA Rule 3220 as amended effective March 30, 2026, what is the most a member firm or associated person may give one individual at another firm in business-related gifts in a year?

• a.$100 per individual each year
• b.$300 per individual per year✓
• c.$500 per individual per calendar year
• d.$300 per individual per gift, with no annual cap

FINRA Rule 3220 prohibits giving anything of value above $300 per individual per year in relation to the recipient's employer's business. The limit was raised from $100 effective March 30, 2026 (Regulatory Notice 26-05). The limit is measured per year in the aggregate, not per gift, and there is no $500 figure in the rule.FINRA Rule 3220

The primary mission of the Securities and Exchange Commission (SEC) is to:

• a.Protect investors and keep markets fair and orderly✓
• b.Set short-term interest rates for the economy
• c.Write and enforce each state's securities laws
• d.Insure deposits at banks and credit unions

The SEC protects investors, maintains fair, orderly, and efficient markets, and facilitates capital formation, by enforcing the federal securities laws. The FDIC insures bank deposits, the Federal Reserve sets monetary policy, and state securities administrators enforce state securities laws.

A broker-dealer hires a new registered representative. Which form does the firm file to register the individual?

• a.Form ADV, the application to register as an investment adviser
• b.Form U4, the Uniform Application for Securities Industry Registration✓
• c.Form U5, the Uniform Termination Notice for Securities Industry Registration
• d.Form BD, the Uniform Application for Broker-Dealer Registration

Form U4 is the application a firm files through the CRD system to register an individual. Form U5 reports the end of a person's registration. Form BD registers the firm itself as a broker-dealer. Form ADV registers an investment adviser firm.FINRA By-Laws Article V, Section 2

A registered representative leaves a broker-dealer. Within how many days must the firm file Form U5 to report the termination?

• a.Within 5 business days of the termination
• b.Within 60 days of the termination
• c.Within 30 days of the termination✓
• d.By the end of the next calendar quarter

FINRA By-Laws Article V, Section 3 requires the firm to file Form U5 no later than 30 days after the termination, and to give the individual a copy. The 5-business-day, 60-day, and next-quarter timeframes are not the filing deadline.FINRA By-Laws Article V, Section 3

Which point in the business cycle marks the lowest level of economic activity, just before a new expansion begins?

• a.The recovery, the phase when output is rising
• b.The peak, the high point before contraction
• c.The contraction, the phase when output is falling
• d.The trough, the low point before expansion✓

The trough is the low point at the end of a contraction, after which expansion begins. The peak is the high point at the end of an expansion. A contraction is the phase of falling output leading down to the trough, and the recovery is the rise that follows the trough.

A normal yield curve shows that:

• a.Short-term rates are higher than long-term rates
• b.Rates are about equal at every maturity
• c.Rates differ by credit rating but not by maturity
• d.Long-term rates are higher than short-term rates✓

A normal (upward-sloping) yield curve pays more for longer maturities. An inverted curve has short-term rates above long-term rates, and a flat curve shows similar rates at all maturities. A yield curve compares maturities of securities of similar credit quality, so credit rating is not what defines its shape.

Which of the following describes inflation?

• a.A sustained rise in the general level of prices✓
• b.A sustained fall in the general level of prices
• c.A rise in the value of the dollar against other currencies
• d.A decline in output and employment across the economy

Inflation is a sustained increase in the general price level, which reduces purchasing power. A sustained fall in prices is deflation. A decline in output and employment describes a recession. A rising dollar describes currency appreciation.

To fight inflation, the Federal Reserve would most likely:

• a.Cut income taxes to leave consumers with more money
• b.Ease policy by buying securities and lowering rates
• c.Cut the federal funds rate to encourage borrowing
• d.Tighten policy by selling securities and raising rates✓

To slow inflation the Fed tightens credit, for example by selling securities and raising rates, which reduces the money supply and borrowing. Buying securities and cutting rates both stimulate demand and would add to inflation. Tax policy is fiscal policy set by Congress, not a Federal Reserve tool.

A warrant gives its holder the right to:

• a.Receive a fixed dividend ahead of common stockholders
• b.Vote alongside common stockholders at the annual meeting
• c.Sell shares back to the issuer at a set price
• d.Buy a stated number of shares at a fixed price✓

A warrant is a long-dated right to buy the issuer's stock at a set price. A right to sell back to the issuer describes a put, not a warrant. A fixed dividend ahead of common is a feature of preferred stock, and a vote comes with owning common stock rather than a warrant.

A call option has a $60 strike with six months to expiration, the stock trades at $55, and the premium is $3. Which statement is correct?

• a.$3 is intrinsic value, since the premium is paid up front
• b.$5 is intrinsic value, since the stock is $5 below the strike
• c.No time value exists, since the call is out of the money
• d.All $3 is time value, and the intrinsic value is $0✓

A call with the stock below the strike has no intrinsic value, so its entire $3 premium is time value, the price of the chance that the stock rises above $60 before expiration. Intrinsic value is never negative, and an out-of-the-money option still has time value. Paying the premium up front does not create intrinsic value.

An investor buys stock at $40 a share and later sells at $45. Ignoring dividends and costs, what is the percentage return?

• a.112.5%, dividing the $45 sale price by the $40 cost
• b.5.0%, using the $5 gain as the percentage
• c.11.1%, dividing the $5 gain by the $45 sale price
• d.12.5%, dividing the $5 gain by the $40 cost✓

Return is measured against the amount invested: $5 / $40 = 12.5%. Dividing by the sale price gives 11.1%, which is the wrong base. Using the $5 dollar gain as a percentage ignores the cost. Dividing $45 by $40 gives 112.5%, which is total value relative to cost and includes the original investment, not the return.

A bond fund holds BBB-rated corporate bonds, and one of them is downgraded to BB. This most directly illustrates which risk?

• a.Liquidity risk, the chance that a bond is hard to sell at a fair price
• b.Reinvestment risk, the chance that interest is reinvested at lower rates
• c.Interest rate risk, the chance that bond prices fall when rates rise
• d.Credit risk, the chance an issuer's ability to pay deteriorates✓

A downgrade from BBB to BB reflects a weaker issuer, which is credit risk and a step from investment grade into speculative grade. Interest rate risk arises from changes in market rates. Liquidity risk is about the ability to sell. Reinvestment risk is about the rate earned on coupons.

An investor places an order to buy mutual fund shares at 11:00 a.m. on a business day. At what price is the order filled?

• a.The price quoted at the opening bell that morning
• b.The next NAV the fund computes after receiving the order✓
• c.The NAV the fund set at the previous day's close
• d.The NAV at the moment the order is received

Mutual funds use forward pricing under Rule 22c-1: an order is filled at the next NAV the fund computes after it is received, usually as of 4:00 p.m. Eastern. The prior day's NAV is stale, and the fund does not compute an NAV at each moment of the day. A fund has no opening price like a stock does.Investment Company Act Rule 22c-1

Macaulay duration of a bond measures:

• a.The yield an investor earns if the bond is called
• b.The weighted-average time to receive the bond's cash flows✓
• c.The number of years until the bond reaches maturity
• d.The total interest the bond pays over its life

Macaulay duration is the weighted-average time, in years, until the bond's coupon and principal payments are received. For a coupon-paying bond it is shorter than the time to maturity. Total interest paid is a dollar amount, not a time measure, and the yield if called is yield to call.

A stock trades at $80 and has a P/E ratio of 20. What are its earnings per share?

• a.$4.00, found by dividing the $80 price by 20✓
• b.$0.25, found by dividing 20 by the $80 price
• c.$60, found by subtracting 20 from the $80 price
• d.$1,600, found by multiplying the $80 price by 20

P/E equals price divided by earnings per share, so EPS = price / P/E = $80 / 20 = $4.00. Dividing the P/E by the price inverts the formula, multiplying turns EPS into a price, and subtracting has no basis in the ratio.

A customer enters a day order to buy 100 shares at 10:00 a.m., and it is not filled by the close. What happens to the order?

• a.It stays open until the customer confirms in writing
• b.It stays open and becomes good-till-cancelled
• c.It expires unfilled at the close of that day's session✓
• d.It converts to a market order at the closing price

A day order is good only for the session in which it is entered and expires if it is not executed by the close. It does not become a GTC order, which must be entered as GTC. It is not converted to a market order, and no written confirmation is needed.

A customer holds a stock trading at $60 and enters an order that becomes a market sell order only if the stock trades down to $55. This is a:

• a.Sell stop order✓
• b.Buy limit order
• c.Sell limit order
• d.Buy stop order

A sell stop order is placed below the market and is triggered when the stock trades at or below the stop price, becoming a market order. A sell limit at $55 placed while the stock is at $60 would be a different order. Buy orders are for purchasing the stock and not for selling a position already held.

Which statement about short selling is correct?

• a.The seller must hold the position in a cash account
• b.The seller profits only if the stock price rises
• c.The seller's loss is limited to the proceeds of the sale
• d.The seller borrows shares and gains if the price falls✓

A short seller borrows shares, sells them, and later buys them back; the profit comes from a price decline. Losses are theoretically unlimited because the price can keep rising. A short seller profits when the price falls, not rises, and short sales must be made in a margin account, not a cash account.

A margin account holds long stock with a market value of $40,000, a $10,000 debit balance, and $30,000 of equity. If the stock falls 20%, what is the new equity?

• a.$30,000, found by treating the debit balance as unchanged equity
• b.$22,000, found from $32,000 of stock less the $10,000 debit✓
• c.$32,000, found by forgetting to subtract the debit balance
• d.$24,000, found by applying the 20% decline to the $30,000 of equity

The stock falls 20% of $40,000, or $8,000, to $32,000. The debit balance stays at $10,000, so equity is $32,000 - $10,000 = $22,000. Applying 20% to equity understates the loss because the borrowed portion also falls. Using $32,000 forgets the loan. Equity is not unchanged just because the debit stays the same.FINRA Rule 4210

XYZ declares a regular cash dividend with a record date of Friday. Under current rules, when is the ex-dividend date?

• a.Wednesday, two business days before the record date
• b.Thursday, one business day before the record date
• c.Friday, the same business day as the record date✓
• d.Monday, the first business day after the record date

FINRA Rule 11140 sets the ex-dividend date for a regular cash dividend at the record date itself when it falls on a business day, because settlement is T+1. The two-business-day gap was the T+2 rule, and under T+1 a purchase on the business day before the record date still settles in time. Ex-dividend dates are not after the record date.FINRA Rule 11140

A dealer sells a customer shares from inventory at $50.00 that the dealer bought at $49.50. The $0.50 difference is:

• a.A markup, the dealer's pay on a principal sale✓
• b.A markdown, the dealer's pay when buying from a customer
• c.A concession, paid to syndicate members on new issues
• d.A commission, the fee for acting as an agent

A markup is the difference between the dealer's price to the customer and the dealer's cost when selling from its own inventory. A commission is charged when a firm acts as an agent. A markdown applies when the dealer buys from the customer. A concession is paid on the distribution of new issues.

On January 5, a customer enters a GTC order to buy 100 shares at a $30 limit while the stock trades at $34. In March the stock falls to $30. Assuming neither the customer nor the firm has cancelled the order, it:

• a.Became a stop order that fills only if the stock trades above $30
• b.Is still working and fills once the stock trades at $30 or lower✓
• c.Converted to a market order once 90 days had passed
• d.Expired automatically at the close of the first trading day

A good-till-cancelled order stays in force until it is filled or cancelled, subject to the firm's own policy, so a buy limit at $30 remains working and fills once the market reaches $30. Expiration at the close of one day describes a day order. A GTC limit does not turn into a market or stop order with the passage of time.

A person passes the SIE. What else is required before being registered as a general securities representative?

• a.Nothing more, because the SIE alone qualifies the person to register
• b.Pass the Series 63 instead, which replaces a top-off exam
• c.Retake the SIE, since the result is valid for only one year
• d.Pass the Series 7 top-off exam while sponsored by a member firm✓

The SIE is a corequisite: registering as a general securities representative also requires the Series 7 top-off exam, which a member firm must sponsor. The SIE alone does not qualify anyone to register. The Series 63 is a state law exam, not a replacement for the top-off, and SIE results stay valid for four years, so no retake is needed within one year.FINRA Rule 1210

An investor owns 300 shares trading at $90. The company completes a 3-for-2 forward stock split. After the split the investor holds:

• a.450 shares still trading near $90
• b.450 shares trading near $60✓
• c.600 shares trading near $45
• d.200 shares trading near $135

A 3-for-2 split gives three new shares for every two held, so 300 shares become 450, and the price adjusts to about $60 (300 x $90 = 450 x $60 = $27,000). Two-thirds of the shares at a higher price is a reverse split. The price must adjust after a forward split, and 600 shares at $45 is a 2-for-1 split.

When a variable annuity owner annuitizes the contract, the accumulated value is converted into:

• a.A single payment treated as a return of principal
• b.A guaranteed return that matches the Treasury rate
• c.Payments for life or for a stated period✓
• d.A tax deduction for the whole accumulated value

Annuitization turns the accumulated value into a stream of periodic payments for life or for a fixed period, with taxable earnings recognized as the payments are received. A lump sum is a withdrawal, not annuitization, and earnings in it are taxable. A variable annuity has no guaranteed return, and no deduction is created at payout.

What does it mean for a bond to be callable?

• a.The issuer may redeem it early at a stated call price✓
• b.The coupon resets whenever market rates change
• c.The holder may swap it for the issuer's common stock
• d.The holder may demand early repayment at par

A call provision lets the issuer retire the bond before maturity at a set price, usually when rates have fallen. A holder's right to demand repayment describes a put feature. A swap into common stock describes a convertible bond, and a reset coupon describes a floating-rate bond.

Which policy can only be sold by a person holding a securities registration, because its cash value is invested in subaccounts?

• a.Whole life insurance, with a guaranteed cash value schedule
• b.Term life insurance, which builds no cash value at all
• c.Universal life insurance, with cash value earning a declared rate
• d.Variable life insurance, with cash value in separate accounts✓

Variable life insurance is a security because its cash value depends on the performance of separate-account subaccounts, so the seller needs a securities registration as well as an insurance license. Whole life guarantees cash value, universal life credits a declared rate, and term life builds no cash value.

On the NYSE, which participant has the obligation to maintain a fair and orderly market in an assigned stock?

• a.The designated market maker (DMM) assigned to the stock✓
• b.A two-dollar broker working overflow orders
• c.A third market maker trading away from the NYSE
• d.A floor broker acting only as an agent

On the NYSE a designated market maker is assigned to a stock and must maintain a fair and orderly market in it. A two-dollar broker helps floor brokers with overflow orders. A third market maker is an over-the-counter dealer that trades exchange-listed stocks away from the exchange. A floor broker acts only as an agent for orders.

A customer opens a new margin account and buys marginable stock. What minimum equity does FINRA Rule 4210 generally require in the account?

• a.$2,000, or the full cost if the purchase is smaller✓
• b.$10,000 once the account is approved
• c.$5,000 for every margin account opened
• d.$25,000 before any purchase can be made

FINRA Rule 4210 sets minimum equity of $2,000 for a margin account, except that the customer need not deposit more cash than the cost of the securities purchased. The $5,000, $10,000, and $25,000 amounts are not the general minimum for opening a margin account.FINRA Rule 4210

Under SEC Rule 15c2-1, a broker-dealer wants to pledge a customer's margin securities together with other customers' securities as collateral for a single firm loan. What must it first obtain?

• a.Approval from FINRA before each pledge is made
• b.Oral consent from the customer, noted on the account record
• c.Written consent from each customer whose securities are pledged✓
• d.Sign-off from the supervising principal, with notice to the customer afterward

Rule 15c2-1 bars a firm from pledging a customer's securities under a lien that also secures other customers' securities unless that customer first gave written consent (in practice, the hypothecation clause of the signed margin agreement). Oral consent is not enough, FINRA does not approve individual pledges, and principal sign-off with after-the-fact notice cannot replace the customer's prior written consent.SEC Rule 15c2-1

A customer buys $10,000 of stock in a margin account, paying $5,000 and borrowing $5,000 from the broker-dealer. The stock later falls to $8,000. Ignoring interest and commissions, what is the customer's equity in the account?

• a.$3,000✓
• b.$8,000
• c.$5,000
• d.$2,000

Equity is market value minus the debit balance: $8,000 - $5,000 = $3,000. The $5,000 figure is the customer's original equity before the decline, $8,000 is market value, which ignores the loan, and $2,000 is the size of the loss, not the equity left (original $5,000 equity - $2,000 loss = $3,000).

Under SEC Rule 3a51-1, which description generally fits a penny stock?

• a.A stock priced under $10 that is quoted only in the over-the-counter market
• b.A stock priced under $5 and not listed on a national exchange✓
• c.A stock of a company with market capitalization under $300 million
• d.A stock priced under $1 that trades on any market

Rule 3a51-1 treats an equity security as a penny stock unless an exclusion applies; the core test is a price below $5 and no listing on a national securities exchange (issuers with larger net tangible assets or revenue can be excluded). The $1 figure is a common mix-up with exchange minimum-bid listing standards, $10 is not the threshold, and market capitalization is not part of the definition.SEC Rule 3a51-1