FINRA Series 7 — All Questions

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

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

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

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

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

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

A gift made into a UTMA custodial account is:

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

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

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

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

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

Under the 60-day rollover rule for retirement accounts:

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

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

A SEP IRA is best described as:

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

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

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

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

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

Regarding required minimum distributions (RMDs), a Roth IRA:

• a.Requires all IRAs to be emptied by age 59 1/2
• b.Is not subject to RMDs during the original owner's lifetime✓
• c.Requires that required minimum distributions begin at age 50 for the original account owner without exception
• d.Begins RMDs as soon as the account is opened

Unlike traditional IRAs, Roth IRAs are not subject to required minimum distributions during the original owner's lifetime, allowing the funds to keep growing tax-free. RMD rules can apply to beneficiaries who inherit a Roth.

Form CRS (the client or customer relationship summary) is:

• a.A federal income tax reporting form that details the retail investor's realized gains, realized losses, and total advisory fees paid for the year
• b.A brief relationship summary disclosing the firm's services, fees, conflicts, and standard of conduct, delivered to retail investors✓
• c.The options disclosure document
• d.A margin agreement

Form CRS is a short relationship summary that broker-dealers and investment advisers must deliver to retail investors, describing services, fees and costs, conflicts of interest, the applicable standard of conduct, and disciplinary history. It complements Regulation Best Interest.

Regulation Best Interest (Reg BI) is built on how many core obligations for broker-dealers?

• a.Four obligations: disclosure, care, conflict of interest, and compliance✓
• b.Three obligations: disclosure, suitability, and supervision
• c.Two obligations: disclosure and care, leaving conflicts to Form CRS
• d.Five obligations: disclosure, care, conflict of interest, compliance, and ongoing account monitoring

Rule 15l-1(a)(2) satisfies the best-interest standard through four component obligations: the disclosure obligation, the care obligation, the conflict-of-interest obligation, and the compliance obligation. It is not a three-part test built from suitability and supervision, it does not leave conflicts to Form CRS, and it has four components rather than five, with no separate ongoing monitoring obligation. Together they require a broker-dealer to act in a retail customer's best interest when making a recommendation.17 CFR 240.15l-1(a)(2)

The suitability obligation to an institutional customer:

• a.Never applies to institutions
• b.Is prohibited
• c.May be met when the institutional customer affirmatively indicates it is exercising independent judgment and is capable of evaluating investment risks✓
• d.Requires exactly the same customer-specific documentation and full investment-profile analysis as an individual retail account in every single case, without any exception

For institutional customers, the customer-specific suitability obligation can be satisfied if the firm reasonably believes the customer is capable of independently evaluating the risks and the customer affirmatively states it is exercising independent judgment. The firm still must have a reasonable basis for believing the recommendation is suitable in general.

On the order book relative to the current market, which orders rest below the market and which rest above?

• a.Stop orders and limit orders are placed at identical prices
• b.All four of these order types are entered above the current market price and are triggered only on upside price moves
• c.Buy limits and sell stops are placed below the market; sell limits and buy stops are placed above the market✓
• d.All four order types rest below the market

A useful memory aid is that buy limits and sell stops go below the current market, while sell limits and buy stops go above it. This reflects that a buyer wants to pay less (buy limit) and a seller protects a long with a sell stop under the market.

On the ex-dividend date for a cash dividend, which resting orders are automatically reduced (absent a special instruction)?

• a.Buy limits and sell stops, unless the order is marked 'do not reduce'✓
• b.Sell limit orders and buy stop orders that rest above the current market price on the order book
• c.No orders are ever adjusted
• d.Only market orders

Because the stock's price is reduced on the ex-date, orders placed below the market (buy limits and sell stops) are automatically reduced by the dividend amount unless marked DNR (do not reduce). Orders above the market (sell limits and buy stops) are not reduced.

A 'do not reduce' (DNR) instruction on an order means:

• a.The order is not adjusted downward for ordinary cash dividends on the ex-date✓
• b.The order is discretionary and lets the representative choose the security and the amount to trade
• c.The order is a short sale
• d.The order must be filled immediately or canceled

A DNR order tells the firm not to reduce the order price for ordinary cash dividends when the stock goes ex-dividend. It applies to the order types that would otherwise be reduced, namely buy limits and sell stops placed below the market.

An immediate-or-cancel (IOC) order:

• a.Is a day order worked over the session
• b.Must be filled completely and immediately or canceled entirely
• c.Remains open until canceled by the customer
• d.Fills as much as possible immediately and cancels the remainder, permitting a partial fill✓

An IOC order executes whatever quantity is available at once and cancels any unfilled balance, so partial fills are allowed. This differs from fill-or-kill, which requires the entire order to be filled immediately or none at all.

An odd-lot order is one for:

• a.Exactly 1,000 shares
• b.More than 100 shares
• c.Exactly 100 shares
• d.Fewer than 100 shares✓

A round lot is the standard trading unit of 100 shares, so an odd lot is any order for fewer than 100 shares. An order such as 150 shares is a mixed lot (one round lot plus a 50-share odd lot).

A market-on-close (MOC) order instructs the broker to:

• a.Execute the order only at a specified limit
• b.Execute the order at or as near as possible to the day's closing price✓
• c.Cancel the order automatically at the close
• d.Execute the entire order at the official opening auction price at the very start of the session

A market-on-close order is submitted to execute at the closing price, participating in the closing auction. It provides no price protection but ensures the customer receives the day's closing print rather than an intraday price.

A 'not-held' order:

• a.Must be executed only at the opening price, and is cancelled if it cannot be filled then
• b.Gives the floor broker discretion over the time and price of execution, and the broker is not held to a missed market✓
• c.Is entered with a stop price and becomes a market order for the full quantity once the stock trades at or through that price
• d.Requires the broker to fill the entire quantity at one price or cancel it, and holds the broker responsible for any missed market

A not-held order lets the executing broker use judgment about when and at what price to fill it in an effort to get a better result, and the broker is not held responsible if the market moves away. It grants time and price discretion only, not discretion over what or how much to trade. An order that works only at the open is a market-on-open order, an order triggered by a stop price is a stop order, and an order that must fill in full or not at all is all-or-none, none of which gives the broker that discretion.

A buy stop order:

• a.Can never be triggered
• b.Is placed above the market; when the stock trades at or through the stop price, it becomes a market order to buy✓
• c.Applies only to bonds
• d.Is placed below the market and becomes a limit order when touched

A buy stop is entered above the current market and is triggered when the stock trades at or through the stop, at which point it becomes a market order to buy. Short sellers use buy stops to limit losses, and momentum buyers use them to enter on an upside breakout.

A trade done for 'cash' settlement settles:

• a.Three business days after the trade (T+3)
• b.Five business days after the trade (T+5)
• c.The same day as the trade (T+0), with delivery and payment on the trade date✓
• d.Two full business days after the trade date (T+2), matching the older standard equity settlement cycle

A cash settlement transaction settles the same day the trade is executed (T+0), with delivery of securities and payment occurring on the trade date. This is faster than regular-way settlement, which for most securities is now T+1.

Under T+1 regular-way settlement, the ex-dividend date is set as:

• a.Two business days before the record date, matching the settlement lag that existed under the former T+2 cycle
• b.The payable date
• c.The record date; a buyer must purchase before the ex-date to be an owner of record and receive the dividend✓
• d.The day after the record date

With T+1 settlement, the ex-dividend date generally coincides with the record date. A buyer must purchase before the ex-date to settle by the record date and be entitled to the dividend; buying on or after the ex-date means the seller keeps the dividend.

The correct chronological order of the four dividend dates is:

• a.Record date, ex-date, payable date, declaration date
• b.Ex-date, declaration date, record date, payable date
• c.Payable date, record date, ex-date, declaration date
• d.Declaration date, ex-dividend date, record date, payable date✓

The board first declares the dividend (declaration date), then the stock trades ex-dividend, ownership is fixed on the record date, and the cash is paid on the payable date. Under T+1 the ex-date and record date typically fall on the same day.

A security trading on a 'when-issued' basis is:

• a.A security that is authorized but not yet issued, trading before final settlement terms are set✓
• b.A private placement
• c.A delisted stock
• d.A security whose issuer has defaulted on its obligations and is trading in anticipation of a bankruptcy reorganization

When-issued trading occurs after a security (such as a new municipal bond or a stock from a split) is announced but before it is actually issued and settlement details are final. Trades are conditional and settle once the securities are formally issued.

The premium on a listed option trade settles:

• a.Two business days after the trade (T+2)
• b.Five business days after the trade (T+5)
• c.On the same day as the trade
• d.The next business day (T+1)✓

Listed option transactions settle regular way on the next business day (T+1); the buyer pays the premium and the writer receives it by the following business day. This matches the current T+1 regular-way cycle for most securities.

A market maker is best described as a firm that:

• a.Only matches customer buy and sell orders strictly as an agent, never taking a position in the security for its own account
• b.Quotes both a bid and an offer and stands ready to buy and sell a security for its own account✓
• c.Assigns credit ratings to securities
• d.Regulates the securities markets

A market maker (dealer) continuously quotes a two-sided market, a bid at which it will buy and an offer at which it will sell, trading for its own account and providing liquidity. It profits from the spread and from markups/markdowns, unlike a pure agency broker.

An electronic communication network (ECN) is:

• a.An electronic system that automatically matches buy and sell orders, often outside traditional exchange hours✓
• b.A type of mutual fund
• c.A central securities clearing corporation that guarantees, nets, and settles every trade executed on the national listed exchanges
• d.A bond rating service

An ECN is an alternative trading system that electronically matches buy and sell orders for securities, providing anonymity and access to trading, sometimes before and after regular market hours. ECNs display quotes and can improve execution speed and price.

The 'fourth market' refers to:

• a.Options trading on an exchange
• b.The trading of newly issued securities sold directly from the issuing corporation to the investing public during the primary distribution period
• c.Floor trading of listed stocks
• d.Direct institution-to-institution trading of securities, often through electronic systems, without a broker-dealer intermediary✓

The fourth market is trading of securities directly between institutions (for example, via ECNs) without using a broker-dealer as intermediary. It contrasts with the third market, which is over-the-counter trading of exchange-listed securities.

An underwriting syndicate is:

• a.A group of federal and state securities regulators appointed to oversee the pricing and distribution of an offering
• b.The transfer agent's processing department
• c.A group of underwriters formed to share the risk of distributing a new securities issue✓
• d.The issuer's board of directors

A syndicate is a group of investment banks that join together to underwrite and distribute a new issue, spreading the capital commitment and risk. A lead (managing) underwriter organizes the syndicate, and a selling group may assist in distribution without assuming underwriting risk.

The registrar for a corporation's stock is responsible for:

• a.Lending shares to short sellers
• b.Sets the stock's official opening market price each trading day and maintains a fair and orderly two-sided quotation in the shares
• c.Underwriting new issues
• d.Auditing the transfer agent and ensuring the number of shares issued does not exceed the number authorized✓

The registrar acts as a check on the transfer agent, verifying that the total number of shares outstanding never exceeds the amount authorized, preventing over-issuance. The transfer agent handles issuance, cancellation, and recordkeeping of certificates.

A Nasdaq Level II quote display:

• a.Reports municipal bond trades
• b.Shows only the single most recent last-sale print and the total cumulative share volume for the trading day
• c.Is available only to the issuing company
• d.Displays the quotes of individual market makers, revealing the depth of the market✓

Level II shows the bids and offers of each market maker in a Nasdaq security, letting a viewer see market depth and which dealers are quoting at each price. Level I shows only the inside (best) bid and offer.

A 'dark pool' is:

• a.A federal securities regulator
• b.A bond rating agency
• c.An alternative trading system that lets institutions trade large blocks anonymously without displaying orders publicly before execution✓
• d.A registered national securities exchange dedicated exclusively to the public listing and continuous trading of low-priced penny stocks under one dollar

A dark pool is a private alternative trading system where large institutional orders can be matched without pre-trade transparency, reducing the market impact of big trades. Executions are reported after the fact, but the resting orders are not publicly displayed.

A corporate bond is quoted at '101 1/2'. Excluding accrued interest, the dollar price on a $1,000 par bond is:

• a.$1,001.50
• b.$101.50
• c.$1,015.00✓
• d.$1,150.00

Corporate bonds are quoted as a percentage of par, and 101 1/2 = 101.5% of $1,000 = $1,015.00. The buyer would additionally pay any accrued interest since the last coupon date on a regular-way purchase.

U.S. Treasury bills are quoted:

• a.On a discount yield basis, reflecting the annualized discount from par✓
• b.In 32nds of a point
• c.By their stated coupon rate
• d.As a percentage of par value in thirty-seconds of a point, exactly like a Treasury note or bond

Treasury bills pay no coupon and are quoted on a discount yield (bank discount) basis, expressing the annualized percentage discount from par. Treasury notes and bonds, by contrast, are quoted as a percentage of par in 32nds.

The 'spread' in a securities quote is:

• a.The dealer's stated commission
• b.The coupon rate minus the yield to maturity
• c.The difference between the bid and the ask, tending to be wider when a security is less liquid✓
• d.The difference between a bond's par value and its current secondary-market trading price, expressed in points

The bid-ask spread is the difference between the highest price buyers will pay (bid) and the lowest price sellers will accept (ask). Wider spreads generally indicate lower liquidity and a higher cost to trade, since investors buy at the ask and sell at the bid.

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.

Under SEC Rule 144, the volume limit on sales by an affiliate over any 90-day period is generally:

• a.Unlimited
• b.The greater of 1% of the outstanding shares or the average weekly trading volume over the preceding four weeks✓
• c.A flat 5% of the total outstanding shares in each and every calendar month, regardless of the average weekly trading volume
• d.10% of the outstanding shares per year

Rule 144 limits an affiliate's sales in any 90-day period to the greater of 1% of the total shares outstanding or the average weekly reported trading volume during the four weeks preceding the filing of Form 144. This throttles resales of control and restricted stock into the market.

Under SEC Rule 144, restricted securities of a reporting company must generally be held for at least:

• a.Six months before they may be resold✓
• b.No minimum period
• c.30 days before resale
• d.Ten years before resale

Restricted securities of an SEC-reporting company must be held for at least six months before resale under Rule 144 (one year for a non-reporting company). The holding period ensures the investor took investment risk before reselling into the public market.

Regulation A under the Securities Act of 1933 provides:

• a.A municipal securities exemption
• b.A private placement exemption limited strictly to accredited investors, prohibiting any form of general solicitation or public advertising
• c.An exemption for smaller public offerings (Tier 1 and Tier 2) using a simplified offering circular instead of full registration✓
• d.A U.S. Treasury borrowing program

Regulation A allows smaller companies to raise capital in a public offering under a streamlined process, with Tier 1 and Tier 2 dollar ceilings and an offering circular rather than a full registration statement. It is sometimes called a 'mini-registration.'

Shelf registration under SEC Rule 415 allows an issuer to:

• a.Set customer margin levels
• b.Register a large amount of securities once and then sell portions over time as market conditions warrant (generally up to three years)✓
• c.Permanently prohibit the sale of the issuer's shares to the public until a fresh, separate registration statement is filed for each individual transaction
• d.Satisfy municipal disclosure requirements

Shelf registration lets an issuer register securities up front and sell them in tranches over an extended period (generally up to three years), taking them 'off the shelf' when timing is favorable, without filing a new registration statement for each sale.

The Trust Indenture Act of 1939 primarily:

• a.Requires that publicly offered corporate bonds above a threshold be issued under an indenture with a qualified trustee that protects bondholders✓
• b.Regulates listed options
• c.Sets margin requirements
• d.Governs the issuance of municipal general obligation and revenue bonds by requiring a formal indenture and an independent, state-appointed bondholder trustee

The Trust Indenture Act of 1939 requires larger public issues of corporate debt to be sold under a trust indenture naming an independent trustee to enforce the bondholders' rights. Municipal and U.S. government securities are exempt from the Act.

A 'tombstone' advertisement for a securities offering is:

• a.A limited announcement of an offering that is not itself an offer to sell the securities✓
• b.The final statutory prospectus
• c.An offer to sell that requires the investor's signature
• d.A preliminary prospectus (red herring)

A tombstone ad is a bare-bones announcement, permitted even during the cooling-off period, that identifies the security, the amount, and where a prospectus can be obtained. It expressly is not an offer to sell; sales require a final prospectus once the registration is effective.

MSRB Rule G-17 requires municipal securities dealers to:

• a.Refrain from making any political contributions
• b.Deal fairly with all persons and not engage in any deceptive, dishonest, or unfair practice✓
• c.Deliver written trade confirmations to customers at or before the completion of every municipal securities transaction
• d.Limit gifts to $300 per year

Rule G-17 is the MSRB's fundamental fair-dealing rule, requiring municipal dealers to deal fairly and honestly with all persons and prohibiting deceptive or unfair practices. It is the municipal-market analog to broad antifraud and fair-dealing obligations.

MSRB Rule G-15 governs:

• a.Margin requirements
• b.The specific dollar limits on political contributions that municipal finance professionals may make to issuer officials
• c.The content and delivery of customer trade confirmations in municipal securities transactions✓
• d.Advertising bans

Rule G-15 requires municipal dealers to deliver a written confirmation to customers at or before the completion of a transaction, disclosing material terms such as price, yield, par, trade and settlement dates, and capacity. It promotes transparency in muni trades.

MSRB Rule G-10 primarily requires municipal dealers to:

• a.Impose a two-year ban on municipal securities business with an issuer after certain political contributions by the dealer
• b.Tell customers at least once each calendar year that an MSRB investor brochure on complaints and rule protections is posted at msrb.org✓
• c.Require that prices and commissions on principal transactions be fair and reasonable in light of all relevant factors
• d.Maintain written supervisory procedures reasonably designed to ensure compliance with municipal securities rules

Rule G-10 requires a dealer, once every calendar year, to give each municipal securities customer a statement that it is registered with the SEC and the MSRB and a statement that an investor brochure on the MSRB's website describes the protections of MSRB rules and how to file a complaint. The two-year ban after political contributions is Rule G-37, the fair-price requirement is Rule G-30, and written supervisory procedures are Rule G-27.MSRB Rule G-10

MSRB Rule G-30 requires that prices in municipal securities transactions be:

• a.Set at exactly par value
• b.Fair and reasonable, considering the market and relevant factors, in principal and agency trades✓
• c.Identical for every customer
• d.Approved in advance by the SEC

Rule G-30 requires that a dealer's prices, including markups and markdowns, be fair and reasonable in light of prevailing market conditions, the dealer's cost, and other relevant factors. It parallels FINRA's fair-pricing standards for other securities.

FINRA Rule 3220 (the gifts rule) currently limits gifts given in relation to the securities business to:

• a.No limit at all
• b.$1,000 per recipient per year
• c.$300 per recipient per year, raised from $100 effective in 2026✓
• d.$50 per recipient per year

FINRA Rule 3220 caps gifts and gratuities related to a person's business at $300 per recipient per year, an increase from the long-standing $100 limit that took effect in 2026. Ordinary business entertainment and de minimis promotional items are generally excluded.

FINRA's continuing education requirement for registered persons consists of:

• a.A Regulatory Element (periodic training on rules and compliance) plus a Firm Element (the firm's annual training plan for covered persons)✓
• b.A voluntary program with no requirements
• c.Training run solely by FINRA
• d.Only a one-time qualifying exam

Continuing education has two parts: the Regulatory Element, periodic computer-based training on regulatory topics that registered persons must complete, and the Firm Element, an annual training program each firm designs for its covered registered persons based on their activities.

When a registered representative leaves a member firm, the firm must file a Form U5 (Uniform Termination Notice):

• a.Never, since the individual files it
• b.Only if the representative requests it
• c.Within 30 days of the termination✓
• d.Within one year

The member firm must file Form U5 within 30 days of a registered person's termination, reporting the reason for departure and any disclosure events. The individual receives a copy, and the information updates the person's CRD/BrokerCheck record.

'Statutory disqualification' refers to:

• a.A condition, such as certain felony convictions or regulatory bars, that can disqualify a person from associating with a member firm✓
• b.A type of margin account
• c.A rule limiting odd-lot orders
• d.A favorable tax status

Statutory disqualification arises from events like certain felony or securities-related misdemeanor convictions within ten years, regulatory bars or suspensions, or willful securities-law violations. A disqualified person generally cannot associate with a member firm without regulatory approval.