FINRA Series 7 — All Questions

An investor who is short a stock over a dividend record date:

• a.Must pay any dividend declared on the borrowed shares to the lender of the stock✓
• b.Owes nothing related to the declared dividend and may instead claim the dividend as taxable income
• c.Receives a special tax credit
• d.Receives the dividend from the company

Because a short seller has borrowed and sold shares that still belong to a lender, the short seller is responsible for paying the lender any dividend declared while the position is open. This is an additional cost of maintaining a short position.

In a rights (subscription) offering, existing shareholders receive:

• a.An automatic dilution of their proportional holdings with no compensation, subscription privilege, or preemptive right of any kind
• b.Shares reserved only for new outside investors
• c.A type of long-term corporate bond
• d.The right to buy new shares, usually below the current market price, in proportion to their current holdings to avoid dilution✓

A rights offering gives current shareholders short-term rights to purchase additional shares at a subscription price typically below market, in proportion to their existing ownership, preserving their percentage stake (their preemptive right). Rights are usually transferable and trade separately.

For a stock priced at $250 or less per share, an odd-lot order is one for:

• a.Exactly 10 shares, the old trading unit for inactive stocks
• b.A multiple of 100 shares of any size, such as 500 or 1,000 shares
• c.Exactly 100 shares, the standard trading unit
• d.Fewer than 100 shares✓

A round lot for a stock priced at $250 or less is 100 shares, so an odd lot is any order for fewer than 100 shares. For higher-priced stocks the round lot is smaller under Regulation NMS Rule 600(b)(93): 40 shares from $250.01 to $1,000, 10 shares from $1,000.01 to $10,000, and 1 share at $10,000.01 or more. Exactly 100 shares, or any multiple of 100, is made up of round lots, and 10 shares is not the unit for a stock at this price level.Regulation NMS Rule 600(b)(93) (17 CFR 242.600)

A stock closes at $20.00 and trades down to $17.90 during the next session. Under Regulation SHO Rule 201, what restriction applies to short sales?

• a.They are allowed at any price, but only by registered market makers
• b.They are barred outright through the end of the next trading day
• c.They are allowed only at a price equal to or below the last sale
• d.They must be priced above the national best bid through the next day✓

A decline of 10% or more from the prior close triggers the Rule 201 alternative uptick rule. Here the drop is 10.5%. For the remainder of that day and the next day, short sales may be executed or displayed only at a price above the current national best bid. Short selling is not banned, and a price at or below the last sale is the opposite of an uptick restriction.Regulation SHO, Rule 201

Before accepting a customer's short sale order in an equity security, a broker-dealer must have:

• a.Obtained written approval from the issuer to sell its security short
• b.Confirmed that the customer holds a long position at another firm
• c.Borrowed the security or have reasonable grounds to believe it can be borrowed✓
• d.Received a deposit equal to 100% of the short sale proceeds

The locate requirement of Rule 203(b)(1) requires the firm to have borrowed the security, arranged to borrow it, or have reasonable grounds to believe it can be borrowed so it can be delivered when due. Issuer approval, a long position elsewhere, and a full cash deposit are not part of the requirement.Regulation SHO, Rule 203(b)(1)

A clearing participant has had a fail-to-deliver position in a threshold security for 13 consecutive settlement days. Under Regulation SHO it must:

• a.Deliver restricted securities under Rule 144 to cover the fail
• b.Close the position out by buying securities of like kind and quantity✓
• c.Mark the position to market and post 50% margin
• d.Notify FINRA and carry the position for 35 more settlement days

For a threshold security, a fail-to-deliver position that persists for 13 consecutive settlement days must be closed out by purchasing securities of like kind and quantity. The participant has no 35-day extension for this purpose, restricted securities do not cure a fail, and a margin deposit does not satisfy the close-out obligation.Regulation SHO, Rule 203(b)(3)

In a Treasury auction, what price does a noncompetitive bidder pay?

• a.The average price weighted across all accepted competitive bids
• b.The price tied to the lowest accepted competitive yield
• c.The single price set by the highest accepted yield✓
• d.The when-issued price quoted on the day the auction is announced

Treasury auctions are single-price auctions. Successful competitive bidders and all noncompetitive bidders pay the price that corresponds to the highest accepted yield. A weighted average price is not used, the lowest accepted yield would correspond to a higher price than other winners pay, and a noncompetitive bidder agrees to accept the auction result rather than quoting a price or paying the when-issued price from announcement day.U.S. Treasury auctions

Three buy limit orders sit in a market: A for 500 shares at 25.10 entered at 10:01, B for 500 shares at 25.12 entered at 10:09, and C for 500 shares at 25.10 entered at 10:05. A market order to sell 500 shares arrives. Whose order trades first?

• a.All three share the fill in proportion to size
• b.A, because it was the first order entered
• c.C, because it was entered after A
• d.B, because it has the best bid price✓

Price takes priority over time: the highest bid at 25.12 trades first, and time priority only decides among orders at the same price. A would be next ahead of C. Orders are not filled pro rata in this setting.Order handling (price-time priority)

A customer enters a sell stop order for 100 shares at 48 while XYZ trades at 50. Trades then print at 49.00, 48.50, 47.90 and 47.60. Which trade makes the order a market order?

• a.The trade at 47.90✓
• b.The trade at 47.60
• c.The trade at 49.00
• d.The trade at 48.50

A sell stop is elected by a trade at or below the stop price. 49.00 and 48.50 are above 48, so they do nothing. The first trade at or below 48 is 47.90, which turns the order into a market order. The 47.60 print comes after the order is already active.Order types (sell stop)

A customer enters a sell stop limit order for 100 shares with a 48 stop and a 47.50 limit. Trades then print 48.20, 47.40, 47.30 and 47.60, and there is enough volume at 47.60 to fill the order. What happens?

• a.The order sells 100 shares at 47.60✓
• b.The order is not executed because no trade printed at exactly the 48.00 stop price
• c.The order sells 100 shares at 47.40, the price of the trade that elected it
• d.The order sells 100 shares at 48.00, the stop price, as soon as the stop is touched

The 48.20 print is above the stop and does nothing. The 47.40 trade is at or below the 48 stop, so it elects the order and turns it into a limit order to sell at 47.50 or better. The 47.30 print is below the limit, so nothing can fill there. The 47.60 print is above the limit, so the order sells at that price. A stop does not need a print at exactly the stop price, a stop-limit order never fills below its limit, so a fill at the 47.40 election price is impossible, and the order does not fill at the stop price because the stop only elects it.Order types (stop limit)

A customer buys stock on Friday, May 22, 2026. Monday, May 25 is Memorial Day and the markets are closed. Under T+1 regular-way settlement, the trade settles on:

• a.Wednesday, May 27
• b.Monday, May 25
• c.Tuesday, May 26✓
• d.Friday, May 22

Regular-way settlement is one business day after the trade date. Monday is a market holiday and is not a business day, so the next business day, Tuesday, is settlement. Monday is closed, Wednesday would be T+2, and Friday would be same-day settlement.Settlement (T+1)

An investor owns 200 shares of XYZ bought at $40 per share and receives a 5% stock dividend. What is the new cost basis per share?

• a.$38.00
• b.$42.00
• c.$40.00
• d.$38.10✓

The investor's total basis of $8,000 is spread over 210 shares, which is $38.10 per share. Basis does not stay at $40.00 because the share count rose, and it does not rise to $42.00 either. A figure of $38.00 subtracts 5% from the price and does not divide the total basis.Corporate actions (stock dividends)

Five rights are required to buy one new share at a $54 subscription price. The stock trades at $60 with rights still attached. What is the theoretical value of one right?

• a.$1.00✓
• b.$1.20
• c.$0.60
• d.$6.00

While the stock trades cum-rights, the value of a right is (market price - subscription price) / (rights needed + 1) = ($60 - $54) / 6 = $1.00. The $1.20 figure is the ex-rights formula, dividing by 5. The $6.00 figure is the whole price difference, and $0.60 divides by 10.Rights offerings

Which statement about the Dow Jones Industrial Average and the S&P 500 is correct?

• a.The Dow is price-weighted; the S&P 500 is weighted by market value✓
• b.Both indexes give each component the same weight regardless of size
• c.Both indexes are price-weighted, with the largest prices counting most
• d.The Dow is weighted by market value; the S&P 500 is price-weighted

In a price-weighted index like the Dow, higher-priced stocks have more influence. The S&P 500 weights each company by its market capitalization. The other statements reverse the two methods or describe equal weighting, which neither index uses.Market indexes

A firm commitment offering is for 10,000,000 shares. Under FINRA Rule 5110, what is the largest overallotment (greenshoe) option the underwriters may receive?

• a.500,000 shares
• b.2,000,000 shares
• c.1,500,000 shares✓
• d.1,000,000 shares

Rule 5110 limits an overallotment option to 15% of the amount of securities offered, so 15% of 10,000,000 is 1,500,000 shares. One million is 10%, two million is 20%, and 500,000 is 5%.FINRA Rule 5110

A $20 offering carries a $1.00 spread made up of a $0.20 manager's fee, a $0.20 underwriting fee and a $0.60 selling concession. A syndicate member sells 50,000 shares itself. Ignoring the manager's fee, what does it earn on those shares? (Takedown is the underwriting fee plus the selling concession.)

• a.$10,000
• b.$40,000✓
• c.$30,000
• d.$50,000

The takedown is $0.20 + $0.60 = $0.80, and 50,000 shares x $0.80 = $40,000. A figure of $30,000 counts only the selling concession. A figure of $50,000 uses the full spread, which includes the manager's fee. A figure of $10,000 counts only the underwriting fee.Underwriting compensation

How does a divided (Western) syndicate differ from an undivided (Eastern) syndicate?

• a.A Western account must sell its securities at a discount to the offer price
• b.Each member answers for the entire unsold amount of the whole offering
• c.Only municipal offerings can be sold through an Eastern account
• d.Each member answers only for its own share of the unsold securities✓

In a Western or divided account each member answers only for its own allocation of unsold securities. In an Eastern or undivided account each member is also liable for a pro rata share of other members' unsold securities. Neither type is limited to municipals, and neither requires selling at a discount.Underwriting syndicates

A quote shows a bid of 25.10 and an ask of 25.20 with a size of 5 x 3. What does the size indicate?

• a.5,000 shares are bid and 3,000 shares are offered
• b.Five buyers and three sellers are in the market
• c.500 shares are bid and 300 shares are offered✓
• d.300 shares are bid and 500 shares are offered

Quote size is stated in round lots of 100 shares, with the bid size first. The 5 x 3 size means 500 shares bid and 300 shares offered. Reversing them is wrong, 5,000 and 3,000 would require multiplying by 1,000, and size is not a count of participants.Quotations

Investor A buys 10 XYZ calls to open from Investor B, who sells 10 of the same calls to open. How does open interest in that series change?

• a.It increases by 10 contracts✓
• b.It decreases by 10 contracts
• c.It increases by 20 contracts
• d.It is unchanged

Open interest counts outstanding contracts. A new buyer and a new writer together create 10 new contracts, so open interest rises by 10, not 20. It would be unchanged only if one party were closing an existing position, and it would fall only if both parties were closing.Listed options (open interest)

A 180-day Treasury bill with $1,000 face value is quoted at a 5.00% discount rate. Using a 360-day year, what is its approximate price?

• a.$987.50
• b.$975.00✓
• c.$950.00
• d.$995.00

The discount is $1,000 x 5% x 180/360 = $25, so the price is $975.00. A price of $950.00 takes a full year's discount. A price of $987.50 takes only 90 days of discount. A price of $995.00 takes only 36 days.Treasury bills

Which entity acts as the central counterparty that clears and guarantees U.S. equity trades?

• a.National Securities Clearing Corp. (NSCC)✓
• b.The Depository Trust Company (DTC)
• c.Fixed Income Clearing Corporation (FICC)
• d.The Options Clearing Corporation (OCC)

NSCC clears equity trades and guarantees completion as central counterparty. FICC performs that role for Treasury and mortgage-backed trades, OCC clears listed options, and DTC is the depository that settles by book entry.Clearing and settlement

A company declares a 2-for-1 stock split, which is a stock distribution of more than 25%, payable on a Thursday. When does the stock begin trading ex-distribution?

• a.The last business day before the payable date
• b.The record date itself, as with a cash dividend
• c.The first full business day after the record date
• d.The first business day after the payable date✓

For stock distributions of 25% or more, Rule 11140 sets the ex-date as the first business day after the payable date, which here is Friday. The record-date rule applies to smaller distributions and cash dividends. The other dates fall before the shares are actually distributed.FINRA Rule 11140

On a price chart, a head-and-shoulders top is most often read as:

• a.A bearish signal that an uptrend may be reversing✓
• b.A signal that prices will stay in a narrow range
• c.A signal that volume will keep rising with no change in trend
• d.A bullish signal that a downtrend may be reversing

A head-and-shoulders top shows three peaks with the middle one highest. Technical analysts treat it as a sign that buying is weakening and an uptrend may turn down. A bullish reversal pattern would be the inverse formation, and neither range-bound trading nor a continuing trend is what the pattern suggests.Technical analysis

A bond's yield rises from 4.35% to 4.60%. By how many basis points did the yield increase?

• a.2.5
• b.0.25
• c.25✓
• d.250

One basis point is 0.01%, so a rise of 0.25 percentage points is 25 basis points. A value of 2.5 or 250 misplaces the decimal, and 0.25 is the change in percentage points rather than basis points.Fixed income quotations

A dealer buys 1,000 shares at $40 for its own inventory and sells them to a customer at $41.20. What is the markup as a percentage of the dealer's cost?

• a.2.9%
• b.1.2%
• c.4.0%
• d.3.0%✓

The markup is $1.20 per share over a $40 cost: $1.20 / $40 = 3.0%. A figure of 2.9% divides by the $41.20 sale price. A figure of 1.2% is the dollar markup, not a percentage. A figure of 4.0% has no basis in the numbers.FINRA Rule 2121 (markups)

A U.S. investor owns an ADR of a British company. The pound weakens against the dollar while the stock price in pounds is unchanged. What happens to the ADR's dollar value?

• a.It stays unchanged because the depositary hedges the currency
• b.It stays unchanged because the ADR trades in dollars
• c.It increases because the underlying shares trade in pounds
• d.It tends to decrease because of currency exchange risk✓

An ADR's dollar price reflects the foreign share price converted at the current exchange rate, so a weaker pound lowers the dollar value even if the pound price is steady. The pound weakening does not raise the value, trading in dollars does not remove currency exposure, and a depositary bank does not hedge holders' currency risk.American depositary receipts

XYZ closes at $50 and opens the next morning at $46 after bad news. A sell stop order at $48 was resting. What is the likely outcome?

• a.It is cancelled because the stock gapped past the stop
• b.It is elected at the open and fills near $46✓
• c.It is filled at exactly the $48 stop price
• d.It is filled at the prior close of $50 instead

A stop order becomes a market order when a trade occurs at or through the stop price. The open at $46 is below $48, so the order is elected and fills near $46, not at the stop price. A stop order is not cancelled by a gap, and an execution at the prior close would be better than the market on the open.Order types (gap openings)

A bond that is in default and trades flat is sold. How is accrued interest handled?

• a.The seller pays accrued interest to the buyer
• b.The buyer pays no accrued interest to the seller✓
• c.The buyer pays the full next coupon to the seller
• d.The buyer pays accrued interest to the settlement date

A bond trading flat, such as one in default or an income bond, has no accrued interest added to the price. The buyer does not pay accrued interest, a full coupon payment is not owed, and the seller does not pay the buyer.Bond trading (flat)

A mutual fund computes its NAV at 4:00 p.m. Eastern. An investor's purchase order reaches the fund through a broker at 4:20 p.m. Eastern. At what price does it execute?

• a.The next NAV computed after the order is received✓
• b.The prior day's closing NAV, since it was the last one computed
• c.That day's 4:00 p.m. NAV, since the order was placed that day
• d.The average of today's NAV and the next NAV computed

Rule 22c-1 requires forward pricing: an order is executed at the next NAV computed after the fund receives it. An order received after the 4:00 p.m. computation gets the next calculation. It does not get that day's NAV, the stale prior NAV, or an average.Investment Company Act Rule 22c-1

Before effecting a short sale for a customer, what must the broker-dealer have?

• a.A guarantee from the issuer that the shares may be sold short
• b.A written power of attorney from the customer for the short sale
• c.Reasonable grounds to believe the shares can be borrowed for delivery✓
• d.Confirmation that the sale is made on a plus tick or zero-plus tick

Regulation SHO requires a locate: the firm must borrow the security, arrange to borrow it, or have reasonable grounds to believe it can be borrowed in time for delivery. A power of attorney is needed only for discretionary trading, no plus tick is required on every short sale, and issuers do not guarantee short sales.Regulation SHO Rule 203

What triggers the alternative uptick rule for a single stock?

• a.A price drop of at least 20% from the prior day's open
• b.A price drop of at least 5% from the prior day's closing price
• c.A price drop of at least 10% from the prior day's close✓
• d.A price drop of at least 15% from the prior close

Rule 201 applies when a stock trades down 10% or more from the prior close, and then short sales are limited to prices above the national best bid for the rest of that day and the next. The other percentages are not the trigger.Regulation SHO Rule 201

The S&P 500 falls 7% from the prior day's close at 1:30 p.m. What happens?

• a.Trading halts across all markets until the next open
• b.Trading halts across the markets for 5 minutes
• c.Trading halts across the markets for 15 minutes✓
• d.Trading halts only in stocks down at least 7%

A 7% fall before 3:25 p.m. is a Level 1 decline and halts trading in all stocks for 15 minutes. The rest-of-day halt applies at 20%, the halt is market-wide rather than stock by stock, and 5 minutes is not a circuit breaker period.SEC and exchange market-wide circuit breakers

At what decline in the S&P 500 does trading halt for the rest of the day?

• a.10% from the prior day's close, if it occurs at any time
• b.13% from the prior day's close, if it occurs before 3:25 p.m.
• c.20% from the prior day's close, at any time of day✓
• d.7% from the prior day's close, if it occurs after 3:25 p.m.

A 20% decline ends trading for the day. A 7% or 13% decline halts trading for 15 minutes before 3:25 p.m. and does not halt it after that time, and 10% is not a market-wide level.SEC and exchange market-wide circuit breakers

When must a participant close out a fail to deliver in a threshold security?

• a.After the fail has persisted for 21 straight settlement days
• b.After the fail has persisted for 13 consecutive settlement days✓
• c.After the fail has persisted for 5 consecutive settlement days
• d.After the fail has persisted for 35 consecutive calendar days

A threshold security with a fail position that persists for 13 consecutive settlement days must be closed out by purchasing shares of like kind and quantity. Five days is part of the test for listing a threshold security, and the other periods do not match the rule.Regulation SHO Rule 203

How long must restricted stock of a reporting company be held before it can be sold under Rule 144?

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

Restricted securities of a reporting issuer have a six-month holding period under Rule 144, and one year applies to non-reporting issuers. Three months and nine months are not holding periods in the rule.SEC Rule 144

What is the three-month sales limit for an affiliate selling stock under Rule 144?

• a.The lesser of 1% of the shares outstanding or the four-week average weekly volume
• b.10% of shares outstanding or the monthly volume, whichever is greater
• c.The greater of 1% of shares outstanding or the prior week's trading volume
• d.The greater of 1% of shares outstanding or the four-week average weekly volume✓

An affiliate may sell, in any three months, the greater of 1% of the outstanding shares or the average weekly trading volume over the four weeks before the sale notice. Using the lesser, the prior week alone, or 10% departs from the rule.SEC Rule 144

When must an affiliate file Form 144 with the SEC?

• a.When selling more than 10,000 shares or $100,000 in a 12-month period
• b.When selling any restricted shares in any amount, at any time
• c.When selling over 5,000 shares or $50,000 in three months✓
• d.When selling more than 500 shares or $5,000 in a three-month period

Form 144 is required if the sale exceeds 5,000 shares or $50,000 in any three-month period. Smaller or larger thresholds, or filing on every sale, are not what the rule requires.SEC Rule 144

An individual is accredited because of net worth. What net worth is required?

• a.Over $2.5 million, excluding the primary residence
• b.Over $1 million, including the value of the primary residence
• c.Over $1 million, excluding the primary residence✓
• d.Over $500,000, excluding the primary residence

An individual qualifies on net worth above $1 million, either alone or with a spouse, not counting the home. The other figures or counting the home fall outside the definition.SEC Regulation D

How many non-accredited purchasers may buy in a Rule 506(b) offering?

• a.None, since only accredited investors may buy
• b.No more than 100 if they are residents of one state
• c.No more than 15 who meet the sophistication test
• d.No more than 35 who meet the sophistication requirement✓

A Rule 506(b) offering allows up to 35 non-accredited purchasers who are sophisticated, either alone or with a purchaser representative, and unlimited accredited investors. Allowing none describes a Rule 506(c) offering, which is limited to accredited investors, and the other limits are not in the rule.SEC Regulation D Rule 506(b)

What is the largest over-allotment option an underwriter may hold in a public offering?

• a.15% of the shares sold in the base offering✓
• b.A cap of 20% of the base offering
• c.15% of the total offering, counting the shares sold under the option itself
• d.25% of the base offering

Rule 5110 treats an over-allotment option for more than 15% of the securities offered, computed without counting the option shares, as an unreasonable term, so 15% of the base offering is the ceiling. Computing 15% on a total that already includes the option shares stretches the limit past what the rule allows, and 20% or 25% of the base offering are simply above the cap.FINRA Rule 5110(g)(9)

Securities received by an underwriter as compensation in a public offering may not be sold, transferred or hedged for how long?

• a.180 days after the offering begins✓
• b.Twelve months after the offering begins
• c.90 days after the offering price is set
• d.30 days after the offering is completed

Rule 5110(e)(1) bars sale, transfer, pledge or hedging of underwriting compensation securities for 180 days beginning on the date sales of the offering commence. Twelve months is longer than the rule requires, and a 90 day or 30 day period, whether run from pricing or from completion, is both too short and measured from the wrong date.FINRA Rule 5110(e)(1)(A)

How should a representative understand FINRA's 5% markup policy?

• a.It is a minimum markup a firm must charge on all small orders
• b.It is a guideline, and a lower charge can still be unfair✓
• c.It applies only to agency trades and not to principal trades
• d.It is a hard cap, so any charge at or below 5% is fair

The 5% policy is a guide to fair pricing, not a safe harbor or cap, and a charge below 5% can still violate FINRA's rules, depending on factors such as price and order size. It sets no minimum, and it applies to principal trades.FINRA Rule 2121

A dealer sells 400 shares to a customer at $25.00 when the prevailing market price is $24.00. What is the markup?

• a.$400, or 4.0% measured against the $25.00 sale price to the customer
• b.$1.00, the per-share difference, with no percentage needed on the confirmation
• c.$200, or about 2.1%, found by measuring from the midpoint of the two prices
• d.$400, or 4.2% of the prevailing market price✓

The markup is $1.00 per share on 400 shares, or $400, and it is expressed as a percentage of the prevailing market price of $24.00, which is about 4.2%. Using the customer's $25.00 price as the base gives 4.0%, which is the wrong base. A per-share difference is not the total dollar amount, and the rule requires both a dollar amount and a percentage. Measuring from the midpoint of the two prices has no basis in the markup calculation.FINRA Rules 2121 and 2232(c)

A customer enters a sell stop order at 48 on a stock now trading at 50. What happens when the stock trades at 48?

• a.The order becomes a market order and is executed at the next available price✓
• b.The order becomes a limit order and executes only at 48 or better
• c.The order is canceled until the stock rises above 50 again
• d.The order executes at exactly 48, whatever the next price

A sell stop becomes a market order when the stock trades at or below the stop price, so the fill may be above or below 48. It does not become a limit order, is not canceled, and carries no price guarantee.Order types

A customer enters a sell stop-limit with a stop of 48 and a limit of 47. The stock gaps down to 45. What happens?

• a.It is canceled because the stock gapped through the limit
• b.It becomes a limit order at 47 and may not fill at 45✓
• c.It executes at 48, the stop price, as a guaranteed fill
• d.It executes at 45, the best price then available to the market

Once the stop is touched, the stop-limit becomes a limit order at 47, so it can fill only at 47 or better. If the price stays at 45, it does not execute. It does not fill at 45, it cannot execute at the stop price, and it is not canceled.Order types

Which order must be executed in its entirety immediately or be canceled?

• a.All-or-none, which can stay open until the whole size trades
• b.Fill-or-kill, which is filled in full at once or it is canceled✓
• c.Immediate-or-cancel, which fills part at once and cancels the rest
• d.Good-till-canceled, which stays open until it is filled

Fill-or-kill requires the whole quantity at once or cancellation. Immediate-or-cancel fills what it can immediately and cancels the rest, all-or-none can remain open until the whole size trades, and a good-till-canceled order stays open.Order types

A stock is quoted $20.00 bid, $20.10 ask. A customer enters a market order to sell. At what price does the customer's order normally execute?

• a.$20.05, the midpoint of the quote
• b.$20.10, the ask the buyer pays
• c.$20.15, the ask plus a tick
• d.$20.00, the quoted bid price✓

A seller hitting the market normally receives the bid, and a buyer pays the ask. The midpoint is not available to a market order, and a price above the ask would not be a sale at the best bid.Quotes

What is the standard settlement cycle for most securities trades?

• a.Two business days following the trade date
• b.On the same business day as the trade date
• c.One business day following the trade date✓
• d.Three business days following the trade date

The SEC shortened the standard cycle to T+1 effective May 28, 2024. Two and three days were earlier cycles, and same-day settlement is not the standard.SEC Rule 15c6-1

Under T+1 settlement, when is a stock normally ex-dividend relative to the record date?

• a.Two business days ahead of the record date
• b.One business day after the record date
• c.On the same business day as the record date✓
• d.One business day ahead of the record date

With T+1 settlement, a buyer on the record date settles that day, so the stock normally goes ex-dividend on the record date itself. One and two days before were the prior T+2 pattern, and a day after would exclude buyers who qualify.SEC Rule 15c6-1

Within what period after approval must a customer return a signed options agreement to the member firm?

• a.5 days after the account is approved
• b.Before the first options trade
• c.30 days after the account is first approved
• d.15 days after the account is approved✓

Rule 2360 requires the signed options agreement within 15 days after the account is approved for options trading. Five days and 30 days are not the period, and the rule does not require it before the first trade.FINRA Rule 2360