FINRA Series 7 — All Questions

When must a customer receive the Options Disclosure Document?

• a.Only if the customer asks the firm for a printed copy
• b.Within 15 days after the customer's first option trade is made
• c.When the customer's first option position expires or is exercised
• d.At or before the time the account is approved for options✓

The ODD must be delivered at or before approval of the options account. Later delivery or delivery only on request would leave the customer without the risk disclosure when the first trade is placed.FINRA Rule 2360

When do standard monthly equity options expire?

• a.On the fourth Friday of the expiration month
• b.On the third Thursday of the expiration month
• c.On the third Friday of the expiration month✓
• d.On the last business day before the month ends

Standard monthly equity options expire on the third Friday of the month. Month-end, the third Thursday and the fourth Friday are not the contract cycle date.OCC Rules

Institutions trade listed stock directly with one another through an electronic network, without a broker-dealer. Which market is this?

• a.The first market
• b.The fourth market✓
• c.The gray market
• d.The third market

Direct trading between institutions with no broker-dealer is the fourth market. The third market is listed securities traded over the counter by dealers, the first market is an exchange, and the gray market is trading in securities not yet issued.Securities Exchange Act of 1934

A firm holds a customer's order to buy 300 shares of XYZ. Before executing it, the firm buys XYZ for its own account at the same price. What is this?

• a.Permitted, if the firm pays a lower price than the customer
• b.Permitted, if the firm discloses the trade to the customer afterward
• c.A violation, since a member may not trade ahead of a held order✓
• d.Permitted, because the order was not yet entered on the exchange

Rule 5320 prohibits trading ahead of a held customer order, and disclosure, timing of entry or price improvement does not cure the conduct.FINRA Rule 5320

Which activity is permitted during the cooling-off period of a new issue?

• a.Guaranteeing a customer a full allotment of shares
• b.Sending sales literature that states the final offering price
• c.Accepting binding orders and delivering the shares sold
• d.Delivering a preliminary prospectus to interested investors✓

During the cooling-off period, firms may deliver the preliminary prospectus and gather non-binding indications of interest. Binding sales and delivery, price-bearing sales literature and allotment guarantees must wait for effectiveness.Securities Act of 1933

A buyer acquires more than 5% of a registered class of stock. When must it file the initial Schedule 13D?

• a.Within ten days of the purchase
• b.Within thirty days of the purchase
• c.Within five business days✓
• d.Within 45 days after year-end

The SEC changed the initial Schedule 13D deadline from ten days to five business days, effective in 2024. Thirty days and the year-end period are not the deadline.Securities Exchange Act of 1934 Section 13(d)

Before accepting a customer's short sale order, a broker-dealer must generally:

• a.Have reasonable grounds to believe it can be borrowed for delivery, and document that✓
• b.Confirm that the security's last trade was at a higher price than the one before
• c.Receive written confirmation from the customer that the customer owns the security in another account
• d.Hold the shares in the firm's vault before the order is entered

Rule 203(b) requires a locate: reasonable grounds to believe the security can be borrowed so that it can be delivered when due, documented before the short sale order is accepted. An uptick test, a customer ownership letter, or pre-borrowed shares in the vault are not what the rule requires.Regulation SHO Rule 203(b)

What defines a threshold security under Regulation SHO?

• a.A security whose short interest exceeds 10% of the public float on two consecutive reporting dates
• b.Fails of at least 100,000 shares and 5% of shares outstanding for ten consecutive settlement days
• c.Fails of at least 10,000 shares and 0.5% of shares outstanding for five consecutive settlement days✓
• d.A decline of at least 10% from the prior close, which triggers the short sale price test

A threshold security has aggregate fails of at least 10,000 shares that equal at least 0.5% of the issue's shares outstanding, persisting for five consecutive settlement days, and appears on an exchange-published list. A 10% price decline concerns Rule 201, and the other two measures are not part of the definition.Regulation SHO Rule 203(c)

A clearing firm's fail to deliver in a threshold security has persisted for 13 consecutive settlement days. What must the firm do?

• a.Wait until the fail has persisted for 35 consecutive settlement days before closing it out
• b.Close out the fail immediately by purchasing securities of like kind and quantity✓
• c.Keep the fail open, provided it pre-borrows the security before accepting every new short sale order
• d.Close out the fail only if it still exceeds 0.5% of the issuer's total shares outstanding

Rule 203(b)(3) of Regulation SHO requires a participant with a fail to deliver in a threshold security that has lasted thirteen consecutive settlement days to close it out immediately thereafter by purchasing securities of like kind and quantity. Until it does, neither the participant nor a broker-dealer it clears for may accept short sale orders in that security, or short it for its own account, without borrowing the security or arranging a bona fide borrow. That pre-borrow restriction is a consequence of the fail, not a substitute for the close-out. The 35 day period applies only to narrow cases such as shares sold under Rule 144 and certain grandfathered fails. The 0.5% figure belongs to the test that makes a security a threshold security, not to the close-out duty.Regulation SHO Rule 203(b)(3)

A stock closed yesterday at $50. Today it trades at $44.90. How are short sales affected?

• a.Short sales may be executed only above the national best bid for the next 30 minutes of trading
• b.Short sales are allowed only above the national best bid, for the rest of today and tomorrow✓
• c.Short sales may be executed only on a plus tick for the next 30 minutes of trading
• d.Short sales are prohibited entirely for the rest of today only, then resume at the next open

Rule 201 is triggered when a stock falls at least 10% from the prior close, here to $45 or less. The alternative uptick rule then restricts short sales to prices above the national best bid for the rest of that day and the following day. It does not ban short selling, and it is not a 30-minute restriction.Regulation SHO Rule 201

At 2:00 p.m. Eastern the S&P 500 is down 13.5% from the prior close. What happens?

• a.Trading halts market-wide for 30 minutes, then resumes
• b.Trading halts market-wide for 15 minutes✓
• c.Trading halts market-wide for the remainder of the day
• d.Trading continues, since a halt requires a decline of at least 20%

A 13% decline is the Level 2 trigger. Before 3:25 p.m. Eastern, a Level 2 decline halts trading for 15 minutes. A halt for the rest of the day follows only at Level 3, a 20% decline, and the halts are not 30 minutes long.Market-wide circuit breakers

At 3:40 p.m. Eastern the S&P 500 is down 8% from the prior close. What happens?

• a.Trading continues; a Level 1 decline after 3:25 p.m. does not halt trading✓
• b.Trading halts market-wide for the remainder of the trading day, as at Level 3
• c.Trading halts for five minutes, the usual period for declines after 3:25 p.m.
• d.Trading halts market-wide for 15 minutes, as it would for any Level 1 decline

An 8% decline is past the 7% Level 1 trigger, but Level 1 and Level 2 declines occurring at or after 3:25 p.m. Eastern do not halt trading. Only a 20% decline, the Level 3 trigger, halts trading at that time of day. There is no five-minute halt.Market-wide circuit breakers

A firm holds a customer's limit order to buy 5,000 shares at $20. The firm then buys 5,000 shares for its own account at $20 without filling the customer's order. This is:

• a.Permitted, if the firm discloses its own trade to the customer on the next account statement sent
• b.Permitted, because the firm bought at the customer's limit price and did not trade through it, so the order was not harmed
• c.Permitted, because a firm may always trade first for its own account when the customer's order is a limit order
• d.Trading ahead, prohibited unless the firm immediately fills the customer's order at the same or a better price✓

Rule 5320 bars a firm from trading for its own account at a price that would satisfy a customer's held limit order unless it immediately fills the customer's order at the same or a better price. Trading at the limit price satisfies the order, so it counts; later disclosure does not cure the violation, and limit orders receive the rule's protection.FINRA Rule 5320

Two traders agree to buy and sell the same stock back and forth at prearranged prices to make trading volume look high. This is:

• a.A liquidity-providing strategy that is permitted if every trade is reported to the tape
• b.A permitted practice if the traders make no net profit from the trades they make
• c.Matched orders that create a false appearance of trading activity, which is prohibited conduct✓
• d.A permitted practice, since the trades take place on a registered national exchange

Prearranged trades with no change in beneficial ownership create a false or misleading appearance of active trading and are manipulative. FINRA Rule 5210 bars publishing transactions that are not bona fide, and the Exchange Act's manipulation provisions bar the scheme. Reporting the trades, earning no profit, or using an exchange does not make them legitimate.FINRA Rule 5210

An investor owns XYZ at $48 and enters a GTC sell stop-limit order with a stop of 45 and a limit of 44.50. XYZ opens the next day at $44. What happens?

• a.The order is cancelled because the opening price of $44 is through the $44.50 limit price
• b.The stop is elected and the order becomes a limit order at 44.50, so it waits for a trade at 44.50 or better✓
• c.The stop is elected and the order becomes a market order that fills at about $44 right away
• d.The stop is elected and the order fills at exactly the $45 stop price that the customer set

A trade at or through the stop price elects a stop-limit order, which becomes a limit order at the limit price: here a sell at 44.50 or better. With the stock at 44, it will not fill until the price rises to 44.50. It does not become a market order, it is not cancelled, and a fill at 45 is not guaranteed because the order is no longer a stop.Order types

An investor is short 500 XYZ at 60 and enters a buy stop at 66. XYZ prints at 66.05. The order now:

• a.Is executed at exactly 66, the stop price, as the customer specified
• b.Becomes a limit order to buy at exactly 66, so it fills only at that price
• c.Remains pending until XYZ falls back below 66, then executes at that lower price
• d.Becomes a market order to buy and fills at the next available price, which is not guaranteed✓

A buy stop is elected when the stock trades at or above the stop price, and it then becomes a market order. The fill may be above or below 66. It does not become a limit order, the stop price is not guaranteed, and a decline is not required for execution.Order types

A customer buys 300 shares of XYZ on Monday and, on Tuesday morning before the shares are delivered, enters an order to sell all 300. How must the firm mark the sell order?

• a.Short, because the customer has not yet received the shares into the account
• b.Long, but only once the purchase has settled and the shares sit in the account
• c.Short exempt, because the sale will settle one business day after the purchase
• d.Long, since a binding purchase contract is ownership and delivery is expected by settlement✓

Under Regulation SHO a person who has entered a binding contract to buy a security is deemed to own it, and a sale may be marked long when the shares are reasonably expected to be in the firm's control by settlement of the sale. The shares are due before the sale settles, so the order is long. Marking it short misreads ownership, short exempt applies only to sales that meet the Rule 201 exceptions, and the rule does not make the customer wait for settlement of the purchase.Reg SHO Rule 200(g)

XYZ declares a cash dividend with a record date of Tuesday, June 10, which is a business day. Under T+1 settlement, what is the last day to buy and receive the dividend?

• a.Friday, June 6, two business days before the record date
• b.Wednesday, June 11, the business day after the record date
• c.Monday, June 9, the business day before the record date✓
• d.Tuesday, June 10, the record date, since a buyer then is on the books

With T+1 settlement the ex-dividend date is the same business day as the record date: Tuesday, June 10. A purchase must be made before the ex-date, on Monday, June 9, to settle on the record date and be a holder of record. A buyer on June 10 or later misses the dividend, and Friday is earlier than needed.FINRA Rule 11140

A customer buys 100 shares of a listed stock on the Wednesday before Thanksgiving, when markets are closed on Thursday. Under regular-way T+1 settlement, the trade settles on:

• a.Monday
• b.Tuesday
• c.Thursday
• d.Friday✓

Regular-way settlement for stocks is one business day after the trade date, and Thursday is not a business day. The next business day after Wednesday is therefore Friday. Thursday is the holiday, and Monday or Tuesday would reflect a longer settlement cycle than T+1.Rule 15c6-1

An investor buys $10,000 par of a 5% corporate bond on Thursday, March 13, 2025, for regular-way settlement. Interest is paid January 1 and July 1, using a 30-day month and 360-day year. What is the accrued interest?

• a.$101.39, counting 73 days from January 1 to settlement on March 14✓
• b.$100.00, counting 72 days to the trade date instead of the settlement date
• c.$83.33, counting only the two full months elapsed
• d.$98.63, counting 72 actual days over a 365-day year instead of 30/360

Accrued interest runs from the last coupon date up to but not including the settlement date. Regular-way settlement is one business day after the trade, so settlement is Friday, March 14, and the count is 30 + 30 + 13 = 73 days on a 30/360 basis: $10,000 x 5% x 73/360 = $101.39. Counting to the trade date, using actual/365, or counting only whole months gives the other figures.Bond calculations

Which is a factor in deciding whether a firm used reasonable diligence to obtain best execution?

• a.The representative's familiarity with each venue's trading system
• b.The customer's federal income tax bracket for the year
• c.The compensation the firm earns from each trading venue it uses
• d.The size and type of the transaction and the character of the market✓

Rule 5310 lists the character of the market, the size and type of transaction, the number of markets checked, the accessibility of the quotation and the terms and conditions of the order. Venue compensation, tax bracket and familiarity are not factors; they could in fact conflict with the customer's interest.FINRA Rule 5310

A firm that internalizes or routes customer orders on an automated basis must conduct regular and rigorous reviews of execution quality. At a minimum, how often?

• a.Monthly, on a customer-by-customer basis for each customer account
• b.Every two years, on an exchange-by-exchange basis for each venue used
• c.Annually, on a firm-wide basis across all of the securities it handles
• d.Quarterly, on a security-by-security and type-of-order basis, or more often✓

Supplementary Material .09 requires reviews at least quarterly, organized security by security and by type of order, with more frequent reviews if the firm's business warrants. Annual, monthly customer-based and biennial reviews do not match the standard.FINRA Rule 5310.09

Regulation NMS Rule 611, the order protection rule, is designed to prevent:

• a.Fails to deliver in a threshold security persisting beyond the allowed number of days
• b.Quoting in increments smaller than the minimum permitted increment for the stock
• c.Executions at prices worse than the protected quotations displayed at other trading centers✓
• d.Short sales at prices at or below the national best bid after a sharp price decline

Rule 611 requires trading centers to have policies to prevent trade-throughs of protected quotations, meaning executions at inferior prices when better protected quotes are available elsewhere. The short sale price test is Rule 201, sub-minimum increments are addressed by Rule 612, and fails to deliver are covered by Regulation SHO's close-out rules.Regulation NMS Rule 611

An alternative trading system operating under Regulation ATS is best described as:

• a.A self-regulatory organization that writes and enforces rules for all of its member firms
• b.A clearing agency that guarantees settlement of trades executed on other venues
• c.A national securities exchange registered under Section 6 with its own listing standards
• d.A broker-dealer-operated venue that matches orders and is not registered as an exchange✓

An ATS is a trading system that brings together buyers and sellers but is operated by a broker-dealer and, under Regulation ATS, is not registered as a national exchange. It does not list securities, it is not a self-regulatory organization, and it does not clear or guarantee trades.Regulation ATS

The third Friday of a month falls on Good Friday, when U.S. markets are closed. Standard monthly equity options for that month expire on:

• a.The following Monday
• b.The preceding Wednesday
• c.The preceding Thursday✓
• d.The following Saturday

Standard monthly equity options expire on the third Friday of the month. When that day is a market holiday, expiration moves to the preceding business day, Thursday. The following Monday is after the scheduled date, Wednesday is two days early, and options no longer expire on Saturday.Listed options

Trader A buys 10 contracts to open from Trader B, who sells them to open. Later, Trader C buys 10 contracts to close from Trader D, who sells them to close. After both trades, open interest and total volume are:

• a.Open interest up by 10 contracts, with total volume of 20 contracts in the two trades
• b.Open interest up by 20 contracts, with total volume of 20 contracts in the two trades
• c.Open interest down by 10 contracts, with total volume of 10 contracts in the two trades
• d.Open interest back at its starting level, with total volume of 20 contracts across the two trades✓

The first trade creates 10 new contracts (open interest +10). The second extinguishes 10 contracts (open interest -10), so open interest ends where it began. Each trade adds 10 to volume, so total volume is 20. Counting both parties of each trade, or counting only the first trade, gives the other figures.Listed options

An investor exercises a European-style S&P 500 index call with a 4,000 strike when the index is at 4,050. The multiplier is 100. How does the exercise settle?

• a.In cash, for $405,000, the index level times the multiplier of 100
• b.By delivery of the stocks in the index in the proportions of their index weights
• c.In cash, for $50, the 50-point gain with no multiplier applied
• d.In cash, for $5,000, the 50-point gain times the multiplier✓

Index options settle in cash because delivering the underlying basket is impractical. The amount is the in-the-money amount times the multiplier: 50 x 100 = $5,000. Physical delivery of the component stocks does not occur, the multiplier cannot be dropped, and the index level times the multiplier is the contract's notional value, not its settlement amount.Index options

In an IPO of a company not previously subject to Exchange Act reporting, a broker-dealer must deliver a preliminary prospectus to a purchaser at least how long before sending the confirmation?

• a.Five business days before sending the confirmation
• b.48 hours before sending the confirmation✓
• c.24 hours before sending the confirmation to the customer
• d.30 calendar days before sending the confirmation

Rule 15c2-8(b) requires a preliminary prospectus to be delivered to anyone expected to receive a confirmation at least 48 hours before the confirmation is sent, when the issuer has not previously been a reporting company. The 24-hour, five-business-day and 30-day periods are not the rule's standard.SEC Rule 15c2-8

For an initial public offering that is immediately listed on an exchange, for how long after the effective date must a dealer deliver a prospectus on transactions in the security?

• a.10 days after the effective date
• b.90 days after the effective date
• c.40 days after the effective date
• d.25 days after the effective date✓

Rule 174 shortens the dealer prospectus delivery period to 25 days for an IPO of a security that is immediately listed on an exchange or quoted on an automated quotation system. Ninety days is the period for a security not listed, and Rule 15c2-8 separately requires responding to requests for the final prospectus during the longer period.SEC Rule 174

How quickly must a FINRA member report an over-the-counter equity trade executed during market hours to a FINRA facility?

• a.As soon as practicable, no later than 10 seconds after execution✓
• b.Within 90 seconds of execution, if the trade is for more than 10,000 shares
• c.By the end of the trade date, together with the day's clearing submissions
• d.Within 15 minutes of execution, for trades between two member firms

Members must report OTC equity trades as soon as practicable and no later than 10 seconds after execution while the facility is open; reports after that are designated late. Longer windows based on size, counterparty or end-of-day clearing do not apply.FINRA Rule 6282

An investor has an open good-til-cancelled buy limit order for XYZ at $30, not marked 'do not reduce.' XYZ goes ex-dividend on a $0.40 cash dividend. The order's price on the ex-date is:

• a.$29.00
• b.$29.60✓
• c.$30.40
• d.$30.00

Open buy limit orders are reduced by the amount of a cash dividend on the ex-date unless marked 'do not reduce,' because the stock's price falls by about the dividend. $30.00 - $0.40 = $29.60. Leaving the price unchanged, adding the dividend or rounding down by a full dollar is incorrect.FINRA Rule 5330

Which pair of open good-til-cancelled orders is reduced on the ex-date of a cash dividend, unless marked 'do not reduce'?

• a.Buy stop orders and buy limit orders
• b.Sell limit orders and buy stop orders
• c.Sell limit orders and sell stop orders
• d.Buy limit orders and sell stop orders✓

Rule 5330 reduces open orders to buy and open stop orders to sell by the dividend, because those are orders that would otherwise sit at prices now too high or low once the stock drops. Open sell limit orders and open buy stop orders are not adjusted.FINRA Rule 5330

A customer buys 100 shares of Harlow Marine on Wednesday, November 25, 2026, regular way. The U.S. markets are closed Thursday, November 26, for Thanksgiving and open Friday. When is delivery due at the purchaser's office under the Uniform Practice Code?

• a.Friday, November 27, because a contract due on a holiday matures on the next business day✓
• b.Monday, November 30, because delivery is due two business days after the trade date, as before May 2024
• c.Tuesday, December 1, because three business days are counted from the trade date under the older rule
• d.Thursday, November 26, because delivery is due one calendar day after the trade date

Regular way delivery is due on the first business day after the trade date. Thursday is a holiday and not a business day, so the contract matures on the next business day, Friday, November 27. Monday and Tuesday come from counting two or three business days, the cycles that applied before the move to T+1 in May 2024. Thursday would be right only by counting calendar days, which the Uniform Practice Code does not do.FINRA Rule 11320(b) and (e)

On Monday, November 2, 2026, one member sells another member 300 shares of Pinewood Foods seller's option, with the option expiring Friday, November 13. The seller wants to deliver as early as the Uniform Practice Code allows. What is the earliest delivery date, and what must the seller do first?

• a.Tuesday, November 3, the first business day after the trade, with written notice given to the purchaser that morning
• b.Friday, November 13, the date the option expires, because a seller's option contract cannot be delivered early
• c.Wednesday, November 4, after giving the purchaser written notice of intention to deliver on an earlier business day✓
• d.Thursday, November 5, the second business day after the trade, once the purchaser has accepted notice by telephone

Under a seller's option contract, the seller may deliver on any business day after the first business day following the trade, provided written notice of intention to deliver reaches the purchaser on a business day before the delivery day. The first business day after Monday is Tuesday, so the earliest delivery is Wednesday, November 4, with notice given Tuesday. Tuesday delivery is not allowed, because delivery must come after the first business day and the notice must come on an earlier day. Telephone acceptance is not required, but the notice must be written, and Thursday is later than needed. Delivery on the expiration date is the default, but early delivery is allowed with notice.FINRA Rule 11320(c)

A member sells 500 shares of Delmar Pharma to another member buyer's option, with the option expiring Friday, November 20, 2026. On Tuesday, November 17, the seller tenders delivery to the purchaser. What are the purchaser's rights?

• a.It must reject the delivery, because a buyer's option contract is deliverable only on the day it expires
• b.It must accept the delivery, because a seller may deliver on any day before a buyer's option expires
• c.It may accept or reject the early delivery, and rejecting does not prejudice its rights✓
• d.It may reject the delivery, but rejecting an early tender ends the seller's obligation to deliver

Under a buyer's option contract, delivery is due on the day the option expires. If the seller tenders early, acceptance is at the purchaser's election, and a rejection is without prejudice to the purchaser's rights. The purchaser is therefore not forced to take the securities early, and it is not barred from taking them, either. A rejection does not release the seller, because the contract remains in force until its terms are met.FINRA Rule 11320(d) and (g)

A regular way contract between two members was due for delivery on Monday, November 2, 2026, and the seller has not delivered. The buyer wants to execute a buy-in as soon as the Uniform Practice Code permits. What is the earliest execution date, and when must the written notice reach the seller?

• a.Friday, November 6, with notice delivered by 12:00 noon ET on Wednesday, November 4
• b.Thursday, November 5, with notice delivered by 12:00 noon ET on Tuesday, November 3✓
• c.Thursday, November 5, with notice delivered by 12:00 noon ET on Wednesday, November 4
• d.Wednesday, November 4, with notice delivered by 12:00 noon ET on Monday, November 2

A buy-in may be executed not sooner than the third business day after the date delivery was due. Counting Tuesday, Wednesday and Thursday, the earliest date is Thursday, November 5. Written notice must reach the seller by 12:00 noon ET two business days before execution, which is Tuesday, November 3. Wednesday execution is only the second business day. Notice on Wednesday leaves a single business day before a Thursday execution. Friday satisfies the notice rule for itself but is a day later than the earliest permitted date.FINRA Rule 11810(a) and (b)(1)

A member delivers a buy-in notice to a selling member at 10:00 a.m. ET on a Tuesday. The seller believes it already delivered and takes no action that day. What is the effect on the notice?

• a.It is deemed accepted, since no signed written rejection was sent by 6:00 p.m. ET on the issue date✓
• b.It is deemed rejected, because silence from the seller is treated as a refusal until the buyer responds
• c.It remains open, because the seller may still reject it by telephone at any time before the buy-in is executed
• d.It is void, because a buy-in notice takes effect only when the seller acknowledges receipt in writing

A seller that does not accept a buy-in notice must send a signed, written rejection by 6:00 p.m. ET on the date the notice was issued. If it sends none, the notice is deemed accepted. The seller does keep a right to ask for proof of the fail obligation before the buy-in date, and the buyer cannot execute to the extent it fails to provide that proof. But silence does not operate as a rejection. Telephone rejection does not count, since the rule requires a signed writing, and the buyer must keep confirmation of receipt but does not need the seller's written acknowledgment.FINRA Rule 11810(b)(4)

Four contracts between members have each failed to settle. For which of them may the buyer use the buy-in procedures of FINRA Rule 11810?

• a.A secondary market trade in unit investment trust units✓
• b.A trade between members in general obligation municipal bonds
• c.A redemption of shares of an open-end mutual fund by its sponsor
• d.A trade between members in direct participation program interests

The buy-in rule excludes municipal securities, redeemable securities of registered investment companies and direct participation program securities. It carves one exception out of the investment company exclusion: secondary market transactions between members in units of a unit investment trust, which are covered. A mutual fund redemption stays outside the rule, as do municipal bonds and DPP interests.FINRA Rule 11810(a)(3), (a)(4) and (a)(5)

A member executes a trade in a corporate bond at 6:20 p.m. ET on a business day. The TRACE system closes at 6:30 p.m. ET. When must the member report the trade?

• a.By 6:35 p.m. ET the same day, which is 15 minutes after the time of execution
• b.Within 60 minutes after TRACE opens the next business day, marked as/of with the execution date
• c.By 15 minutes after TRACE opens the next business day, marked as/of with the execution date✓
• d.By the settlement date of the trade, because trades near the close are reported when they settle

A trade executed less than 15 minutes before the system closes cannot be reported within 15 minutes of execution, because the system is shut by then. The rule moves the deadline to the next business day: as soon as practicable after TRACE opens, and no later than 15 minutes after it opens. A report made on that day is marked as/of and shows the execution date. A 6:35 p.m. deadline falls after the system has closed. The 60-minute window applies to certain agency mortgage-backed TBA trades, not to a corporate bond, and there is no settlement-date deadline for this trade.FINRA Rule 6730(a)(1)(C)

A syndicate member sells new-issue corporate bonds to a customer at the fixed offering price at 11:00 a.m. ET on a business day. By when must the member report that trade to TRACE?

• a.Within 15 minutes of the time of execution, as for any other corporate bond trade
• b.Within 15 minutes after TRACE opens the next business day, and not at any later time that day
• c.By the next business day during TRACE hours, marked as/of if reported on that day✓
• d.Within 60 minutes of the time of execution, because new-issue trades get a longer window

List or fixed offering price transactions and takedown transactions have their own deadline: they must be reported no later than the next business day during TRACE System Hours, and a report made on that day is designated as/of with the execution date. The 15-minute rule governs ordinary trades. No 60-minute window exists for these trades. The 15-minutes-after-open limit belongs to late-day and after-hours trades, while this trade may be reported any time during system hours on the next business day.FINRA Rule 6730(a)(2)

At 2:00 p.m. on a Tuesday, a senior official at a listed company learns that its CFO told a broker-dealer's analyst during a private call that quarterly earnings will fall far short of guidance. The CFO did not realize the information was material and nonpublic. By when must the company make public disclosure?

• a.No later than 2:00 p.m. Wednesday, the later of 24 hours or the start of Wednesday's NYSE trading✓
• b.By 9:30 a.m. Wednesday, the start of the next NYSE trading day, because the earlier time governs
• c.Simultaneously with the call, because any disclosure to an analyst must be made public at that moment
• d.In the next Form 10-Q, because only intentional disclosures require any public disclosure at all

A disclosure the speaker did not know was material and nonpublic is non-intentional, and the company must disclose promptly. Promptly means as soon as reasonably practicable after a senior official learns of it, and in no event after the later of 24 hours or the start of the next day's NYSE trading. Twenty-four hours from 2:00 p.m. is 2:00 p.m. Wednesday, which is later than the 9:30 a.m. open. Simultaneous disclosure is the standard for intentional disclosures. The earlier of the two times is not the test. Waiting for a periodic report would leave the selective disclosure uncorrected well past the deadline.SEC Regulation FD, 17 CFR 243.100(a)(2) and 243.101(d)

A listed company's CFO privately shares unannounced merger plans with each person below. Disclosure to which person does NOT trigger Regulation FD's public disclosure requirement?

• a.A registered representative at a broker-dealer who recommends the stock to clients
• b.The company's outside law firm partner, who owes it a duty of trust or confidence✓
• c.A large shareholder who is reasonably likely to trade on the information received
• d.A portfolio manager at an investment adviser that has not agreed to confidentiality

Regulation FD reaches disclosures to broker-dealers and their associated persons, investment advisers, investment companies, and holders of the issuer's securities when it is reasonably foreseeable they will trade. It does not apply to a person who owes the issuer a duty of trust or confidence, such as an attorney, investment banker or accountant, or to a person who expressly agrees to keep the information confidential. The adviser, representative and shareholder have no such duty and gave no such agreement.SEC Regulation FD, 17 CFR 243.100(b)

A company's investor relations director deliberately tells an investment adviser on a private call that a major product launch will be delayed, information she knows is material and nonpublic. What must the company do?

• a.File a Form 8-K by the next business day, since no other method of public disclosure is permitted
• b.Disclose publicly at the same time as the call, by Form 8-K or other broad, non-exclusionary means✓
• c.Make public disclosure promptly, which allows until the later of 24 hours or the next NYSE open
• d.Make public disclosure only if the adviser trades on the information before the next market open

A deliberate disclosure is intentional, so the public disclosure must be simultaneous. The company can furnish a Form 8-K or use another method reasonably designed to give broad, non-exclusionary distribution, so the 8-K is not the only route. Whether the adviser trades is irrelevant, because the rule is triggered by the selective disclosure itself. The 24-hour window applies only to non-intentional disclosures.SEC Regulation FD, 17 CFR 243.100(a)(1) and 243.101(e)

A customer buys 1,000 shares of Orbit Labs on Monday and, on the same day and before the purchase settles, sells those 1,000 shares. The customer owns no other Orbit shares and has no stock loan arranged. How should the sell order be marked?

• a.Short exempt, because the customer expects to deliver the shares at settlement of the purchase
• b.Unmarked, because a sale covered by a pending purchase is outside the marking rules
• c.Short, because the customer does not yet hold the shares in the account at the time of sale
• d.Long, because a buyer under a binding contract is deemed to own the shares before they arrive✓

A person is deemed to own a security once it has purchased it under an unconditional, binding contract, even before receiving it. The order can be marked long if it is reasonably expected that the shares will be in the firm's possession or control by settlement, and the purchase settles in time to cover the sale. Short applies to a seller that does not own the security. Short exempt is reserved for sales that meet the exceptions in Rule 201. Every sell order in an equity security must carry a mark, and none is left blank.SEC Regulation SHO, 17 CFR 242.200(b)(2) and (g)(1)

A customer's account holds 800 shares of Keystone Rail, with no pending purchases and no open short position. The customer enters one order to sell 1,200 shares. How must the firm mark the shares?

• a.All 1,200 shares long, because the customer owns the stock and the order is a single order
• b.800 shares long and 400 shares short, since only the net long position counts as owned✓
• c.800 shares long and 400 shares short exempt, because the excess is covered by the customer's position
• d.All 1,200 shares short, because the order is larger than the position held in the account

A person is deemed to own a security only to the extent of its net long position, and a sale order is marked long only if the seller is deemed to own the security sold. The customer owns 800 shares, so 800 can be marked long and the remaining 400 are a short sale. Marking all 1,200 long would overstate ownership. Marking all of the order short ignores the shares actually owned. Short exempt applies only when the Rule 201 exceptions are met, and holding the stock is not one of them.SEC Regulation SHO, 17 CFR 242.200(c) and (g)

Four customers each want to sell 500 shares of Brandt Energy that they do not yet hold in their accounts. Which sale may the firm mark long?

• a.The customer who has exercised call options on 500 shares and awaits delivery✓
• b.The customer who expects to borrow 500 shares from the firm before settlement
• c.The customer who has an open order to buy 500 shares that has not been executed
• d.The customer who holds call options on 500 shares and has not yet exercised them

A person is deemed to own a security when it has an option to acquire the security and has exercised it. A holder who has not exercised the options has only a right to buy, and so does not yet own the shares. A borrower who sells before delivering borrowed stock is making a short sale. An open buy order that has not executed is not an unconditional contract to purchase, so no ownership arises.SEC Regulation SHO, 17 CFR 242.200(b)

A syndicate manager enters a stabilizing bid for a new issue offered by prospectus at $30.00 a share. Which statement about that bid is correct?

• a.It may be made to lift the price above $30.00, to show buyers that the new issue is advancing
• b.It may be made at prices above $30.00 for the first week, because the offering is still being distributed
• c.It may be made at any price the manager chooses, if the prospectus discloses that stabilizing may occur
• d.It may be used only to prevent a price decline, and not above the $30.00 offering price✓

Stabilizing is permitted only to prevent or retard a decline in the market price of the security, and it may not be made at a price higher than the lower of the offering price or the stabilizing bid in the principal market. Using a bid to push the price up is manipulative. Disclosure in the prospectus does not widen the permitted price, and no first-week allowance lets a stabilizing bid exceed the offering price.SEC Regulation M, 17 CFR 242.104(b) and (f)(1)

An issuer sells shares through an underwriter in an at-the-market offering, with the shares sold at prevailing market prices. The underwriter wants to place a stabilizing bid at the last sale price. May it do so?

• a.Yes, if the bid is no higher than the last independent sale price
• b.No, since stabilizing is barred in an at-the-market offering✓
• c.Yes, if the underwriter first discloses the bid to the exchange
• d.Yes, but only in the first 30 days after the offering date

Rule 104 prohibits stabilizing in an at-the-market offering, because the shares are sold at prevailing prices and a stabilizing bid would itself set the price being used. Keeping the bid at or below the last independent sale price does not cure that. Disclosure to the exchange does not create an exception, and the rule has no 30-day permission.SEC Regulation M, 17 CFR 242.104(e)

For the four calendar weeks before the week of a planned buyback, the average daily trading volume reported for Calloway Tools stock was 120,000 shares. Ignoring the once-a-week block exception, what is the most the issuer can repurchase on one day and stay within the Rule 10b-18 safe harbor?

• a.60,000 shares, half of average volume
• b.12,000 shares, a tenth of the average volume
• c.30,000 shares, a quarter of average volume✓
• d.120,000 shares, the entire average volume

The volume condition caps the day's repurchases by the issuer and its affiliated purchasers at 25% of the average daily trading volume, which is 25% of 120,000, or 30,000 shares. A 10% cap would give 12,000 shares. Half of the volume would be 60,000, and the full average would be 120,000, which would make the issuer the entire market for a day.SEC Rule 10b-18(b)(4) and (a)(1)

Wicker Foods has a public float value of $400 million and an average daily trading value of $5 million. Its primary session closes at 4:00 p.m. ET. To stay within the Rule 10b-18 safe harbor on the time condition, when must the issuer stop buying back its shares during the session?

• a.Fifteen minutes before the close, at 3:45 p.m. ET
• b.Thirty minutes before the close, at 3:30 p.m. ET
• c.Five minutes before the close, at 3:55 p.m. ET
• d.Ten minutes before the close, at 3:50 p.m. ET✓

A security with an average daily trading value of at least $1 million and a public float value of at least $150 million is subject to a 10-minute blackout before the scheduled close, so repurchases must stop by 3:50 p.m. A 30-minute blackout, ending 3:30 p.m., applies to all other securities and would apply to a smaller stock. Neither 3:45 nor 3:55 matches any time condition in the rule.SEC Rule 10b-18(b)(2)