FINRA Series 7 — All Questions

A customer account had no activity during a calendar quarter. At a minimum, how often must the firm send account statements?

• a.Once a year, after the end of the customer's tax year
• b.At least once each month, whether or not there was activity
• c.Only when the customer requests a statement in writing
• d.At least once in each calendar quarter, even with no activity✓

Rule 2231 requires a statement at least once each calendar quarter, so an inactive account is still covered. Annual or on-request statements fall short of that minimum.FINRA Rule 2231

A customer tells a representative to buy 500 shares of ABC whenever and at whatever price the representative chooses. How long may this time and price discretion continue without a written authorization?

• a.Until the customer's next account statement is sent
• b.For one year, with annual renewal needed
• c.Until the end of the business day it was given✓
• d.For 30 days unless the customer revokes it

Discretion limited to time and price is allowed without written authorization only until the end of that business day. Longer discretionary authority requires a written power of attorney and principal approval.FINRA Rule 3260

What is the maximum SIPC protection for one customer's securities and cash?

• a.$500,000, including no more than $250,000 of cash✓
• b.$1,000,000, including no more than $250,000 of cash
• c.$250,000, including no more than $100,000 held as cash
• d.$500,000, including at most $100,000 of cash

SIPC covers up to $500,000 per customer, of which up to $250,000 may be cash. It protects against a firm's failure and missing assets, not against a fall in the value of securities.SIPC

A customer receives a distribution from an IRA and wants to roll it over to another IRA. How long does the customer have to complete the rollover?

• a.30 days from the day the distribution is received
• b.120 days from the day the distribution is received
• c.90 days from the day the distribution is received
• d.60 days from the day the IRA distribution is received✓

An IRA distribution may be rolled over within 60 days of receipt to avoid tax. Missing the 60 days makes the distribution taxable, and the other figures are not the rule.Internal Revenue Code Section 408

A 45-year-old takes a $20,000 withdrawal from a traditional IRA and meets no exception. How is it taxed?

• a.As ordinary income only, since IRAs carry no penalty
• b.As ordinary income, plus a 20% additional federal tax
• c.As ordinary income, plus a 10% additional tax✓
• d.As long-term capital gains, plus a 10% additional tax

Traditional IRA withdrawals are ordinary income, and a withdrawal before age 59 and a half without an exception adds a 10% additional tax. Capital gains rates do not apply, and the additional tax is 10%, not 20%.Internal Revenue Code Section 72

Which items must a broker-dealer's customer identification program collect for an individual opening an account?

• a.Name, date of birth, address and income
• b.Name, address, occupation, employer and net worth
• c.Name, date of birth, address and an ID number✓
• d.Name, employer, address and a signature card on file

The customer identification program rule requires a name, date of birth, residential address and an identification number such as a taxpayer ID. The other items may be collected for other reasons but are not required by the rule.31 CFR 1023.220

A customer buys 1,000 shares at $40 in a margin account. Under Regulation T, what is the minimum initial payment?

• a.$20,000, which is 50% of the $40,000 purchase✓
• b.$10,000, which is 25% of the $40,000 purchase price
• c.$30,000, which is 75% of the $40,000 purchase price
• d.$2,000, which is the minimum equity for a margin account

Regulation T sets initial margin on a long purchase at 50%, so the customer must deposit $20,000 and may borrow the rest. 25% is the long-account maintenance level, 75% is not a Regulation T figure, and the $2,000 minimum equity is a floor, not the Regulation T requirement for a $40,000 purchase.Regulation T

A long margin account holds securities worth $26,000 with a debit balance of $20,000. Does the account meet FINRA's minimum maintenance requirement?

• a.Yes; equity of $6,000 is above 20% of market value, which is the required minimum
• b.No; equity of $6,000 is below the $6,500 required, which is 25% of the $26,000 value✓
• c.Yes; the $20,000 debit is under 80% of market value, which is the permitted maximum
• d.No; equity of $6,000 is below the $13,000 required, which is 50% of $26,000

Minimum maintenance on long positions is 25% of current market value: 0.25 x $26,000 = $6,500. Equity is $26,000 - $20,000 = $6,000, so the account is short and a maintenance call results. 20% and 80% are not the FINRA minimum, and 50% is the Regulation T initial level, not the maintenance level.FINRA Rule 4210

A customer sells short 1,000 shares at $30 in a margin account. Under Regulation T, what initial deposit is required in addition to the sale proceeds?

• a.$7,500, the 25% figure used for long maintenance
• b.$30,000, a full 100% of the sale proceeds
• c.$15,000, half of the $30,000 sale value, paid on top of the proceeds✓
• d.$45,000, 150% of the sale proceeds, counting the sale credit itself

A short sale must be margined at 150% of its value: $45,000. The $30,000 sale proceeds count toward that, leaving $15,000 for the customer to deposit, which is 50% of the value. Depositing 100% or 150% in addition to the proceeds overstates the requirement, and 25% is a long-position maintenance level.Regulation T

A customer is short 1,000 shares of a stock trading at $3.00 in a margin account. What is the minimum maintenance margin on the position?

• a.$5,000, which is a flat $5 a share on the 1,000 shares sold short
• b.$3,000, the greater of $2.50 a share or 100% of market value✓
• c.$2,500, which is a flat $2.50 a share on the 1,000 shares sold short
• d.$900, which is 30% of the $3,000 market value of the short position

For short stock selling below $5 the maintenance requirement is the greater of $2.50 per share or 100% of market value. Here 100% of $3,000 exceeds $2,500, so $3,000 applies. 30% and $5 a share are the requirements for shorts priced at $5 or more, and $2.50 a share is only the floor.FINRA Rule 4210

A new customer opens a margin account and buys $3,000 of stock on margin. Regulation T requires $1,500. What is the least the customer must have in the account?

• a.$2,000, because FINRA's minimum equity exceeds the Regulation T amount✓
• b.$750, because only 25% of the purchase is due in a new account
• c.$3,000, because the full cost is due when the purchase is below $5,000
• d.$1,500, because Regulation T alone governs a margin purchase of this size

FINRA requires at least $2,000 of equity in a margin account (or the full purchase price if that is lower). The Regulation T amount of $1,500 is below the floor, so $2,000 must be deposited. The purchase exceeds $2,000, so full payment is not required, and 25% is a maintenance level, not an initial one.FINRA Rule 4210

A firm believes a 72-year-old customer is being financially exploited and places a temporary hold on a requested disbursement. How long may the initial hold last?

• a.30 business days from the date the hold was first placed
• b.10 business days from the date the customer was notified
• c.30 calendar days from the date the hold was first placed
• d.15 business days after the hold is first placed✓

Rule 2165 permits an initial hold of up to 15 business days, with the firm required to notify the parties authorized on the account, and the trusted contact, no later than two business days after the hold begins. Extensions are available only under the rule's own conditions, so a longer first hold is not permitted.FINRA Rule 2165

Which statement about a trusted contact person under FINRA Rule 4512 is correct?

• a.The firm must refuse to open any non-institutional account until the customer names a trusted contact
• b.The requirement applies equally to institutional and non-institutional accounts, with no exceptions
• c.The trusted contact may enter orders and withdraw funds if the customer becomes seriously ill
• d.Reasonable efforts to get one for non-institutional accounts; the account may open without it✓

Rule 4512 requires reasonable efforts to obtain the name and contact information of a trusted contact aged 18 or older for non-institutional accounts, but the firm may open and maintain the account if the customer declines. Institutional accounts are excluded, and a trusted contact has no trading authority; the person is only someone the firm may contact about the customer's well-being.FINRA Rule 4512

Which Regulation Best Interest obligation requires a firm to maintain written policies and procedures reasonably designed to achieve compliance with Regulation Best Interest as a whole?

• a.The Disclosure Obligation
• b.The Care Obligation
• c.The Compliance Obligation✓
• d.The Conflict of Interest Obligation

Regulation Best Interest has four component obligations. The Compliance Obligation is the one covering written policies and procedures aimed at the regulation overall. Disclosure concerns material facts about the relationship and recommendation, Care concerns diligence and a best-interest basis, and Conflict of Interest concerns identifying and addressing conflicts.SEC Regulation Best Interest

A representative recommends a security to the owner of a small business for the brokerage account of the owner's corporation. Does Regulation Best Interest apply to that recommendation?

• a.No; it covers recommendations to natural persons for personal use, not a company✓
• b.Yes; it covers every recommendation to any account holder, whatever the type
• c.No; it covers only margin and options recommendations to natural persons
• d.Yes; it covers any account whose owner is a natural person, even when the account is used for business

A retail customer under Regulation Best Interest is a natural person (or that person's legal representative) who uses the recommendation primarily for personal, family or household purposes. A corporation's account is outside that definition. The rule is not limited to margin or options, and it does not cover all account types.SEC Regulation Best Interest

When must a broker-dealer deliver Form CRS (the relationship summary) to a retail investor?

• a.Before or at the earliest of a recommendation, an order, or the account opening✓
• b.Once a year, with the January account statement of each retail investor
• c.Only when the investor requests it in writing after the account is open
• d.Within 30 days after the account is opened and the first trade settles

A broker-dealer must deliver Form CRS to a retail investor before or at the earliest of: a recommendation of an account type, transaction or strategy; placing an order for the investor; or opening a brokerage account. Delivery after the fact, on request only, or annually does not satisfy the timing requirement.SEC Rule 17a-14

When must the options disclosure document (ODD) be given to a customer?

• a.At or before the time the customer's account is approved for options trading✓
• b.Within 30 days after the customer's first options transaction has been executed
• c.Within 15 days after the customer's account has been approved for options trading
• d.Only when the customer first writes an uncovered option, not before then

Rule 2360 requires the ODD to be furnished at or before the time the account is approved for options trading, so the customer sees the risks before trading begins. The 15-day period relates to returning the signed options agreement, and delivery after the first trade or only for uncovered writing is too late or too narrow.FINRA Rule 2360

A firm's supervisory office receives a complete and correct application package for a deferred variable annuity. By when must a registered principal review and decide whether to approve it?

• a.No later than seven business days after the office receives the package, and before transmittal✓
• b.No later than seven business days after the insurer receives the package from the firm
• c.No later than three business days after the office receives the package, and before transmittal
• d.No later than 15 business days after the office receives the package, and before transmittal

Rule 2330 requires a registered principal to review and decide on the recommended purchase or exchange before the application goes to the insurer, and no later than seven business days after an office of supervisory jurisdiction receives a complete and correct package. Three or fifteen business days do not match the rule, and the clock does not start when the insurer receives the application.FINRA Rule 2330

Which factor must a principal consider when reviewing the exchange of one deferred variable annuity for another?

• a.Whether the issuing insurer carries the highest credit rating available
• b.Whether the customer is older than 59 1/2, in every case
• c.Whether the customer had another deferred variable annuity exchange within 36 months✓
• d.Whether the customer has an active margin account at the firm

Rule 2330 directs the principal to weigh the exchange's costs and benefits, including surrender charges, new fees and lost benefits, and whether the customer had another deferred variable annuity exchange within the preceding 36 months. Age 59 1/2 is not a universal test, margin status is unrelated, and the rule does not require the top insurer rating.FINRA Rule 2330

A brokerage firm fails, and a customer's account holds $420,000 of securities and $90,000 of cash. What is the maximum SIPC protection for the account?

• a.$420,000, because SIPC protects securities only and does not cover cash
• b.$510,000, because cash within the $250,000 limit is covered in full
• c.$500,000, of which no more than $250,000 is cash, leaving $10,000 unprotected✓
• d.$250,000, because that is the total limit for any one customer

SIPC protects up to $500,000 per customer in a separate capacity, including up to $250,000 of cash. The account's $510,000 exceeds $500,000 total, so $10,000 is unprotected, though the $90,000 of cash is within the cash sublimit. Cash is covered, and $250,000 is only the cash portion of the limit.SIPA

For an account of a natural person where a firm makes recommendations, how often after the initial 30-day mailing must the firm send the customer the account record for verification?

• a.At intervals of no more than 12 months
• b.At intervals of no more than 36 months✓
• c.At intervals of no more than 60 months
• d.At intervals of no more than 24 months

Rule 17a-3(a)(17) requires the firm to furnish the account record to the customer within 30 days of opening the account and at least every 36 months afterward, and to send notice of changes of name or address. Annual, biennial and five-year cycles do not match the rule.SEC Rule 17a-3(a)(17)

Which item must a trade confirmation show?

• a.The firm's net capital position on the trade date of the transaction
• b.Whether the firm acted as agent or as principal in the transaction✓
• c.The customer's total portfolio value immediately after the trade settles
• d.The firm's inventory position in the security before the trade was executed

Rule 10b-10 requires a confirmation to disclose the date, time or a statement that time will be furnished, the identity, price and quantity of the security, and the firm's capacity as agent or principal. Inventory, total portfolio value and net capital are not confirmation items.SEC Rule 10b-10

A representative recommends a penny stock to a customer who is not an established customer. After sending the required suitability statement and obtaining the customer's signed agreement, when may the firm execute the order?

• a.No sooner than two business days after sending the suitability statement✓
• b.Immediately after the customer signs and returns the statement
• c.No sooner than five business days after the agreement is signed
• d.No sooner than 30 days after the account is approved

Rule 15g-9 requires the firm to send a written statement of the basis for its suitability determination, obtain the customer's signed and dated copy and a written agreement to the transaction, and then wait: it is unlawful to effect the transaction less than two business days after the statement (or the agreement) is sent. The signed return does not remove the waiting period, and the rule contains no five-business-day or 30-day period.SEC Rule 15g-9(a)(2), (b)(4)(ii)

Which security is most clearly a penny stock under the SEC definition?

• a.A stock priced at $4 that is quoted over the counter, with no exchange listing or exemption✓
• b.A mutual fund share priced at $4 issued by a registered investment company
• c.A stock priced at $4 that is listed on a national securities exchange meeting its standards
• d.A stock priced at $6 that is quoted over the counter, with no exchange listing or exemption

A penny stock is generally an equity security priced below $5 that is not listed on a national exchange meeting listing standards and does not fall within another exclusion. The exchange-listed stock is excluded, $6 is above the price test, and shares of registered investment companies are excluded.SEC Rule 3a51-1

Under SEC Rule 15c3-3, margin securities carried for customers are excess margin securities, which the firm must keep in its possession or control, when their market value exceeds what amount relative to the customers' debit balances?

• a.140% of the aggregate debit balances✓
• b.100% of the aggregate debit balances, the ceiling on pledging customer securities under Rule 15c2-1
• c.125% of the aggregate debit balances shown in the customers' margin accounts
• d.150% of the customers' aggregate debit balances after netting free credit balances

Rule 15c3-3(a)(5) defines excess margin securities as margin securities carried for a customer with a market value in excess of 140 percent of the total of the customer's debit balances, which the firm identifies as not constituting margin securities. Those securities must be kept in the firm's possession or control. The 100% figure is the limit Rule 15c2-1 places on pledging customer securities against customers' aggregate indebtedness, a different rule. The 125% and 150% figures do not appear in the definition.SEC Rule 15c3-3(a)(5)

A customer takes a check from her traditional IRA, payable to her, intending to roll it over to another IRA. What is the deadline for completing the rollover?

• a.Within 60 days after she receives the distribution✓
• b.Within 30 days after she receives the distribution of funds
• c.Within 90 days after she receives the distribution of funds
• d.By the end of the tax year following the distribution

An indirect rollover must be completed within 60 days after the distribution is received. Thirty and ninety days, or the end of the next tax year, do not match the rule. Only one indirect IRA-to-IRA rollover is allowed in any 12-month period across all of a person's IRAs.IRS Topic 413

An employee receives a $50,000 eligible rollover distribution from her 401(k) paid to her instead of directly to an IRA. How much is withheld, and what must she do to roll over the whole amount?

• a.$5,000 is withheld, and she must add $5,000 of other money within 60 days
• b.Nothing is withheld if she rolls over within 60 days, so she deposits the $50,000 she received
• c.$10,000 is withheld, and the plan returns it to her when she rolls over $40,000
• d.$10,000 is withheld, and she must add $10,000 of other money within 60 days✓

A taxable eligible rollover distribution paid to the participant carries mandatory 20% withholding, here $10,000, so she receives $40,000. To defer tax on the full $50,000 she must deposit it within 60 days, replacing the withheld $10,000 from other funds. A direct rollover avoids withholding; the plan does not refund the withholding, and 10% is not the rate.IRS Topic 413

Which information must a broker-dealer's customer identification program collect about an individual before opening an account?

• a.Name, signature, citizenship and a reference from another firm
• b.Name, address, employer and the source of the opening deposit
• c.Name, date of birth, address and an identification number✓
• d.Name, occupation, annual income, net worth and investment goals

The minimum identifying information for an individual is name, date of birth, address and an identification number, such as a taxpayer identification number for a U.S. person. Income, net worth, occupation and similar details may be collected for suitability, but they are not CIP minimums.31 CFR 1023.220

A firm opens an account for a limited liability company. Whom must it identify and verify as beneficial owners under the customer due diligence rule?

• a.Each individual owning 10% or more, with no control person required
• b.Every individual owning any interest, however small, with no control person required
• c.Only the individual who signs the account application, whatever the ownership level
• d.Each individual owning 25% or more, plus one individual who controls the company✓

The CDD rule requires identification and verification of each individual who owns 25% or more of a legal entity customer and one individual with significant control. Ownership is not tested at 10% or at any interest, and the signer is not the test.31 CFR 1010.230

A customer gives a representative time-and-price discretion on Monday without any written statement about duration. Absent a specific, signed and dated written indication to the contrary, how long does the authority last?

• a.Until the end of the week in which the customer granted it to the representative
• b.Until the end of the business day on which it was granted✓
• c.Until the customer revokes it in writing, however long that takes
• d.For 30 days from the date the customer granted it to the representative

Under Rule 3260, time-and-price discretion lasts only until the end of the business day on which the customer granted it, unless the customer signs and dates a written statement saying otherwise. It does not run until revoked, for 30 days, or through the week.FINRA Rule 3260

Before a representative may exercise discretion in a customer's account, what must be in place?

• a.The supervisor's verbal approval, with the customer's authorization to follow
• b.The customer's prior written authorization to a named individual, and the firm's written acceptance✓
• c.The firm's written acceptance of the account, with the customer's authorization due within 30 days
• d.The customer's oral authorization, noted on an order ticket by the representative

Rule 3260 requires prior written authorization from the customer to a stated individual and written acceptance of the account by the firm, in accordance with Rule 3110. Each discretionary order must then be approved promptly in writing. Oral authorization, later authorization and supervisor-only approval do not satisfy the rule.FINRA Rule 3260

After receiving a customer's order to buy 500 shares of Delmar Tech, a firm that is not a market maker in the stock buys 500 shares at $20.30 from another dealer and sells them to the customer at $20.40 as principal. Besides the usual items, what must the confirmation show?

• a.The best bid and offer quoted on the primary market at the moment the customer's order was received
• b.The $0.10 per share difference between the customer's price and the firm's contemporaneous purchase price✓
• c.A statement of principal capacity alone, since price differences are disclosed only on bond confirmations
• d.The firm's full inventory cost for all Delmar shares it held in inventory before the customer's order arrived

Rule 10b-10 requires a firm that is not a market maker, and that buys to offset a contemporaneous customer sale, to disclose the difference between its purchase price and the customer's price. Here that is $20.40 less $20.30, or $0.10 a share. The firm's older inventory cost is not part of this disclosure because the trade was offset by a purchase made after the order. Prevailing quotes are not a required item on an equity confirmation. Capacity alone is not enough, because the equity rule itself calls for the price difference, so the claim that only bond confirmations show one is wrong.SEA Rule 10b-10(a)(2)(ii)(A)

On a Tuesday, a customer asks in writing for the information that would have appeared on the confirmation of a trade executed 45 days earlier. Within how many business days must the firm give or send it?

• a.20 business days
• b.10 business days
• c.15 business days✓
• d.5 business days

Rule 10b-10(c) gives the firm 5 business days to respond to a request for confirmation information, but extends that to 15 business days when the transaction took place more than 30 days before the request. At 45 days the longer period applies. Five days is the period for a recent trade. Ten and twenty business days do not appear in the rule.SEA Rule 10b-10(c)

A customer buys a corporate bond, callable before maturity, at a dollar price of 101. In addition to the price and yield to maturity, which statement must the confirmation include?

• a.The yield to call calculated from the dollar price, which replaces the yield to maturity on the confirmation
• b.That the bond may be redeemed early, that redemption could change the yield, and that details are on request✓
• c.The complete call schedule, with every call date and call price printed in full on the confirmation
• d.The next call date and call price, shown only when the bond is bought at a premium to its par value

For a debt security subject to redemption before maturity, Rule 10b-10(a)(4) requires a statement that the security may be redeemed, that redemption could affect the yield represented, and that additional information is available on request. The full call schedule is not required on the confirmation. For a dollar-price trade the rule calls for the yield to maturity, so yield to call does not replace it. Call date and price are required when the trade is done on a yield-to-call basis, not merely because the price is above par.SEA Rule 10b-10(a)(4)

A firm sells 50 corporate bonds of $1,000 par to a retail customer at 99.00. That morning the firm bought 100 of the same bonds at 97.50, which is the prevailing market price. What markup must the confirmation show?

• a.$750 in total, and about 1.54% of the market price✓
• b.$1,500 in total, found by applying the 1.5-point markup to the 100 bonds bought that morning
• c.$750 total, 1.52% of the 99.00 customer price
• d.$750 in total, expressed as 1.50% against the $1,000 par value of each bond

The markup is 99.00 less 97.50, or 1.5 points, which is $15 per $1,000 bond. On the 50 bonds sold, that is $750. Rule 2232(c) requires the dollar amount and a percentage of the prevailing market price, so the percentage is 1.5 divided by 97.5, about 1.54%. Applying the markup to the 100 bonds in the offsetting purchase gives $1,500 but ignores that only 50 were sold. Dividing by the customer's price gives 1.52%, and measuring against par gives 1.50%; both use the wrong base.FINRA Rule 2232(c)

A firm acquires newly issued corporate bonds in a fixed-price offering and sells them to retail customers at the offering price on the day it acquired them. What does Rule 2232 require on those confirmations?

• a.Markup disclosure is excused only if the firm also discloses its underwriting spread on the confirmation
• b.Markup disclosure, the TRACE reference and the execution time are all excused because the offering price was fixed
• c.Markup disclosure is excused, but the TRACE web page reference and the execution time to the second are still required✓
• d.Markup disclosure is required, because a same-day sale to a retail customer is never excused from it

Rule 2232(d)(2) excuses the markup disclosure when the member acquired the security in a fixed-price offering and sold it to non-institutional customers at the offering price on the acquisition day. The exception reaches only paragraph (c). Paragraph (e) still applies to all such debt transactions with non-institutional customers, so the confirmation needs the TRACE reference and the execution time expressed to the second. Treating the exception as covering the whole confirmation is wrong, as is ignoring the exception, and no rule ties it to spread disclosure.FINRA Rule 2232(d)(2) and (e)

A customer buys and redeems shares of a no-load money market fund that holds a stable net asset value, and has agreed in writing to receive periodic statements instead of confirmations. How often must the statements go out?

• a.Within five business days after the end of each quarter, listing every purchase, redemption and dividend
• b.Within five business days after the end of each month, listing every purchase, redemption and dividend✓
• c.Within five business days after the end of each year, listing the net change in the account
• d.Within thirty calendar days after each purchase or redemption, listing that transaction alone

Rule 10b-10(b) allows a no-load, stable-value money market fund to be handled with periodic statements, sent within five business days after the end of each monthly period, once the customer has been told in writing. The quarterly schedule applies to investment company and periodic plan transactions, not to this case. A per-trade deadline of thirty days and an annual summary are not part of the rule.SEA Rule 10b-10(b)

A firm routes a customer's market order for an NMS stock to a wholesale market maker and receives payment for that order flow. What does the agency confirmation have to say about it?

• a.The exact rebate per share the firm received on the order, printed on the face of the confirmation
• b.Nothing, because payment for order flow is disclosed only in the firm's annual Form CRS filing
• c.Whether it receives payment for order flow, and that the source and nature are available on written request✓
• d.The name of the market maker that took the order, but only if it exceeded 10,000 shares

For an agency trade in an NMS stock, Rule 10b-10(a)(2)(i)(C) requires the confirmation to state whether the firm receives payment for order flow and that the source and nature of the compensation will be furnished on the customer's written request. The exact rebate need not be printed. Form CRS is a separate relationship summary and does not replace the confirmation statement. The rule has no 10,000-share threshold.SEA Rule 10b-10(a)(2)(i)(C)

A firm sells 200 shares of Orlin Corp to a customer out of its own inventory, and it makes a market in Orlin. What capacity information must the confirmation give?

• a.That the firm acted as principal, with market maker status shown only in the firm's quote records
• b.That the firm acted as dual agent, because it also holds a position in the security
• c.That the firm acted as agent, since the customer placed an order and the firm earned a fee
• d.That the firm acted as principal and that it is a market maker in the security✓

Rule 10b-10(a)(2) requires the confirmation to say whether the firm acted as agent or principal and, when principal, whether it is a market maker in the security. Selling from its own inventory is principal activity. Calling it agency would misstate the capacity, and dual agency means acting for both buyer and seller, which does not describe a sale from inventory. Market maker status belongs on the confirmation itself, not only in internal records.SEA Rule 10b-10(a)(2)

A customer's margin account holds 200 shares of a utility stock and nothing else. There were no trades, dividends or other entries during the quarter. Must the general securities member send a statement for that quarter?

• a.No, because statements are required only for accounts that carry a money balance at quarter end
• b.No, because statements are required only for accounts that had activity during the period
• c.Yes, but only if the market value of the position changed during the quarter just ended
• d.Yes, because the account had a security position during the period since the last statement✓

Rule 2231(a) requires a statement at least once every calendar quarter for each customer whose account had a security position, money balance or account activity since the last statement. A position alone qualifies, so the quiet account still gets one. Requiring activity, or a money balance, reads the three triggers as if each were mandatory. The rule does not tie the statement to a change in market value.FINRA Rule 2231(a)

A customer's account is serviced by an introducing firm and a carrying firm. The account statement must advise the customer to report any inaccuracy or discrepancy to which firm or firms?

• a.The carrying firm, which holds the assets and prepares the statement
• b.Both the introducing firm and the carrying firm that service the account✓
• c.SIPC, which would restore any assets found to be missing from the account
• d.The introducing firm, which handles the relationship with the customer

Rule 2231(a) requires the statement to advise the customer to report any inaccuracy or discrepancy promptly to the brokerage firm and, when two firms service the account, to make the report to both. Naming only the carrying firm or only the introducing firm leaves one firm without notice of the problem. SIPC is not where discrepancies are reported, and it protects against firm failure rather than correcting statements.FINRA Rule 2231(a)

An institutional customer's account is used only for delivery-versus-payment trades under Rule 11860 and shows no positions at quarter end. The firm wants to stop sending quarterly statements. What else must be in place?

• a.The customer's agreement to take monthly trade confirmations that replace the quarterly statement
• b.Proof that the customer is an institutional account with total assets above $50 million
• c.FINRA's written approval of the suspension under the Rule 9600 Series, given for each such account
• d.The customer's written consent, and the firm's promise to supply statements and restart delivery on request✓

Rule 2231(b) lets a firm suspend quarterly statements for a DVP/RVP-only account with no quarter-end positions when the customer consents in writing and the firm undertakes to provide any statement promptly on request and to reinstate delivery promptly on request. FINRA approval is not a condition, since the rule itself grants the relief. Confirmations are a separate obligation and do not substitute for the consent. A $50 million asset test belongs to the institutional account definition, not to this exception.FINRA Rule 2231(b)

An unlisted REIT sold shares at $25.00. Its prospectus shows 86% of proceeds available for investment, and escrow was broken 14 months ago. What per share estimated value may a member show using the net investment method?

• a.$3.50
• b.$21.50✓
• c.$29.07
• d.$25.00

The net investment method applies the amount-available-for-investment percentage to the offering price: $25.00 times 86% is $21.50. It may be used until 150 days after the second anniversary of breaking escrow, and 14 months is within that window. The $25.00 figure ignores the deductions for commissions and offering costs. The $3.50 figure is the deduction itself, 14% of the price. The $29.07 figure divides by 86% instead of multiplying.FINRA Rule 2231(c)(1)(A)

A widowed customer, still competent, gives the firm written instructions to send her account statements to her adult son as well. What must the firm do?

• a.Send statements to the son as instructed and keep sending them directly to the customer✓
• b.Send statements to the son in place of the customer, since her written instruction is enough
• c.Send statements to the son only after he provides a court appointment over her account
• d.Decline the request, because statements may go only to the registered owner of the account

Supplementary Material .02 to Rule 2231 permits statements to go to another person on the customer's written instructions, but the firm must continue sending them to the customer. Stopping delivery to the customer requires a court-appointed fiduciary who provides an official copy of the appointment, which the son does not hold. Refusing outright is wrong because the rule expressly allows third-party delivery with written instructions.FINRA Rule 2231, Supplementary Material .02

A customer asks the firm to list a $60,000 certificate of deposit held at her bank on her brokerage statement. The firm does not carry the CD. What must the statement say about it?

• a.That it is shown as a courtesy, that its value comes from an outside source, and that SIPC may not cover it✓
• b.That it is shown as a courtesy, with the firm responsible for confirming its value every month
• c.That it is held in the customer's name at the carrying firm and is part of her net equity
• d.That the firm guarantees the CD's value and that SIPC protection applies up to the statutory limit

Supplementary Material .06 requires externally held assets to be clearly separated and to carry three disclosures: they are included solely as a courtesy, their information and valuation come from the customer or another outside source for which the member is not responsible, and they may not be covered by SIPC. Guaranteeing value or claiming SIPC coverage is the opposite of those disclosures. A monthly valuation duty is not imposed. The firm does not carry the asset, so it is not part of net equity.FINRA Rule 2231, Supplementary Material .06

A carrying firm's statement for an account introduced by another firm lists both firms, the contact numbers and the opening and closing balances on the front. Which item is still missing from the front under Rule 2231?

• a.A year-to-date total of the commissions the customer has paid
• b.A statement that the carrying firm is a member of SIPC✓
• c.The carrying firm's most recent net capital figure
• d.A summary of the customer's stated investment objectives

Supplementary Material .05 requires the front of the statement to show the identity and customer service contacts of the introducing and carrying firms, that the carrying firm is a SIPC member, and the account's opening and closing balances. The statement already has all but the SIPC membership notice. Investment objectives sit in the account record, net capital is a firm financial matter, and a commission total is not among the required front-of-statement items.FINRA Rule 2231, Supplementary Material .05

A carrying firm validates a customer's ACATS transfer instruction on Tuesday, December 8, 2026. By what date must the carrying firm complete the transfer?

• a.Thursday, December 10, 2026
• b.Friday, December 11, 2026✓
• c.Wednesday, December 9, 2026
• d.Monday, December 14, 2026

Rule 11870(e) requires the carrying member to complete the transfer within three business days after validation. Counting Wednesday, Thursday and Friday gives Friday, December 11. December 9 is only one business day after validation. December 10 is two. December 14 counts four business days, which exceeds the limit.FINRA Rule 11870(e)

A customer says her account holds 300 more shares of Brightline Corp than the carrying firm's records show. She has just submitted an ACATS transfer of the whole account. How should the carrying firm respond to the instruction?

• a.Delay validation by three business days to reconcile the records before transferring
• b.Take exception to the instruction until the share discrepancy is resolved with the customer
• c.Validate it only for the positions both the customer and the firm agree on
• d.Validate it and transfer the positions its books show, handling the discrepancy separately✓

A carrying member may not take exception to a transfer because of a dispute over securities positions or money balances. It must transfer what its books and records show, and the discrepancy is worked out separately. Taking exception, validating only the agreed positions, or adding days to reconcile all hold the account hostage to the dispute, which the rule prohibits.FINRA Rule 11870(d)(2)

An ACATS transfer of a whole account has been validated. The account has an open good-till-cancelled order to buy 100 shares of a stock and an open order on calls that expire in five business days. What happens to the orders?

• a.Both open orders are cancelled and no new orders are taken because the freeze covers all open orders
• b.The stock order stays in place and only the order on the expiring calls is cancelled
• c.The stock order is cancelled and no new orders are taken, but the order on the calls may stay✓
• d.Both open orders stay in place until the transfer is complete, but no new orders are taken

On validation of a whole-account transfer, the carrying member must freeze the account: open orders are cancelled, with an exception for option positions that expire within seven business days, and no new orders may be taken. Calls expiring in five business days fall within the exception, so that order may remain, while the stock order is cancelled. Cancelling both ignores the option exception. Leaving both orders in place ignores the freeze. Cancelling only the option order reverses the rule.FINRA Rule 11870(d)(1)

A customer is moving her whole account by ACATS. It includes shares of a mutual fund proprietary to the carrying firm, and the receiving firm has not agreed to accept that fund. What must the carrying firm do?

• a.Take exception to the instruction and hold it until the receiving firm agrees to accept the fund
• b.Liquidate the fund on validation and send her the proceeds, since her consent is not needed for that
• c.Transfer the fund anyway, because a whole-account transfer has to carry all positions to the new firm
• d.Send her a written list and ask whether to liquidate it, keep it at the carrying firm, or transfer it in her name✓

A proprietary product of the carrying member is treated as nontransferable unless the receiving member agrees to accept it. For a whole-account transfer, Rule 11870(c)(3) requires the carrying firm to give the customer a list and ask in writing, before or at validation, whether to liquidate (with the fee indication), retain it, or transfer it physically in her name. Forcing a transfer ignores the nontransferable status. Selling without instructions skips the customer's choice. Taking exception delays the transfer for a reason the rule does not allow.FINRA Rule 11870(c)(3)