Obtains and Verifies Customer Purchase and Sales Instructions and Agreements; Processes, Completes, and Confirms Transactions — Series 7 FINRA practice questions

For a long margin account, LMV equals equity plus the:

1. Cash amount on deposit
2. Reg T buying power line
3. Debit balance owed
4. SMA account balance line

Answer: C — Debit balance owed

A) Cash is not the debit. B) Buying power is derived. C) Correct — LMV equals EQ plus DR. D) SMA is separate.

Regular-way settlement for a corporate bond trade currently occurs:

1. Same day (T+0)
2. One business day after trade date (T+1)
3. Three business days after trade date (T+3)
4. Five business days after trade date (T+5)

Answer: B — One business day after trade date (T+1)

B) Correct — regular-way settlement for corporate bonds (like equities) is T+1. A) T+0 is cash settlement, an exception rather than the regular-way standard. C) T+3 was the standard prior to the shortened settlement cycle. D) T+5 has never been the regular-way standard.

SMA (Special Memorandum Account) is generally INCREASED by an:

1. Increase in long stock market value above Reg T level
2. Cash withdrawal of proceeds from the trading account
3. Margin call being met by the customer via deposit
4. Short position moving further against the customer

Answer: A — Increase in long stock market value above Reg T level

A) Correct — long stock appreciating above Reg T requirement generates excess equity that credits SMA. B) Withdrawals reduce SMA. C) Meeting a call doesn't increase SMA. D) Losing positions don't build SMA.

FINRA maintenance margin on a short stock position is:

1. 30% of market value
2. 25% of market value
3. 50% of market value
4. 10% of market value

Answer: A — 30% of market value

A) Correct — 30% minimum on short. B) 25% is long maintenance. C) 50% is Reg T, not maintenance. D) 10% is too low.

A margin agreement typically includes a:

1. Loan consent authorization form
2. Guaranteed profit clause
3. Fixed rate for account life
4. Standard waiver of Reg T

Answer: A — Loan consent authorization form

A) Correct — hypothecation and loan consent. B) No profit is guaranteed. C) Rates are variable. D) Reg T cannot be waived.

A customer buys a corporate bond. Accrued interest is calculated from the:

1. Next scheduled coupon date backward 30 days
2. Prior coupon date up to (not including) settlement
3. Prior coupon date through the settlement date fully
4. Bond's original issue date through settlement date

Answer: B — Prior coupon date up to (not including) settlement

A) Reverses the direction of accrual. B) Correct — standard accrual runs from last coupon paid to (but not including) settlement. C) Settlement date is excluded from the count. D) Issue date is not the reset — coupon dates are.

On the ex-dividend date for a cash dividend, the stock price will typically:

1. Open higher by roughly the dividend amount
2. Trade unchanged from the prior day close
3. Open lower by roughly the dividend amount
4. Be halted for the entire trading session

Answer: C — Open lower by roughly the dividend amount

A) Reverses the direction of the ex-date adjustment. B) The exchange adjusts the opening price down. C) Correct — the opening print is reduced by the declared dividend. D) Trading is not halted for ex-dividend.

The FINRA 5% policy is a:

1. Hard rule capping all markups at 5% total
2. Guideline for fair markups and commissions
3. Reg T short-sale margin requirement level
4. Maintenance margin for penny stock positions

Answer: B — Guideline for fair markups and commissions

A) The 5% policy is a guideline, not a bright-line rule. B) Correct — guideline used to evaluate markup/markdown reasonableness. C) Not a margin rule. D) Not a maintenance requirement.

The Regulation T initial margin requirement on equity purchases is:

1. 25% of purchase price
2. 50% of purchase price
3. 30% of purchase price
4. 75% of purchase price

Answer: B — 50% of purchase price

A) 25% is the FINRA long maintenance margin. B) Correct — Reg T requires 50% initial margin on equities. C) 30% is the short maintenance margin. D) Above the Reg T requirement.

A trade confirmation sent to a customer must disclose all of the following EXCEPT:

1. Trade date and settlement date
2. The capacity in which the firm acted
3. The customer's account balance in all of their other accounts
4. The price and quantity of the security traded

Answer: C — The customer's account balance in all of their other accounts

C) Correct — a confirmation covers the specific trade, not the customer's unrelated account balances. A) Trade and settlement dates are required. B) Capacity (agent or principal) is required. D) Price and quantity are core required disclosures.

What is a stop-limit order?

Becomes a limit order (not market) when stop price is reached. Has both a stop price and limit price.

Can a customer use SMA to buy additional securities?

Yes — SMA acts as a line of credit. The customer can buy up to 2× the SMA amount (due to 50% Reg T). $10,000 SMA = $20,000 buying power.

What is a day order?

Expires at end of trading day if not executed. Default order type.

What is SMA (Special Memorandum Account)?

A line of credit in a margin account representing the buying power above the Reg T requirement. Can be used for additional purchases.