Exam ID : Series7

Exam Title : General Securities Representative Series 7

Questions : 135 (125 Scored)

Unscored : 10

Duration : 3 hrs 45 min.

The Series 7 test is designed to assess the competency of entry-level General Securities Representatives. The Series 7 test seeks to measure the degree to which each candidate possesses the knowledge- skills and abilities needed to perform the critical functions of a General Securities Registered Representative. In order to obtain registration as a General Securities Representative- candidates must pass both the Series 7 test and a general knowledge co-requisite- the Securities Industry Essentials (SIE) exam.

Seeks Business for the Broker-Dealer from Customers and Potential Customers 7%

Opens Accounts After Obtaining and Evaluating Customers Financial Profile and Investment Objectives 9%

Provides Customers with Information About Investments- Makes Suitable Recommendations- Transfers Assets and Maintains Appropriate Records 73%

Obtains and Verifies Customers Purchase and Sales Instructions and Agreements; Processes- Completes and Confirms Transactions 11%

The test is administered via computer. A tutorial on how to take the test is provided prior to taking the exam. Each

candidates test includes 10 additional- unidentified pretest items that do not contribute toward the candidate's

score. The pretest items are randomly distributed throughout the exam. Therefore- each candidates test consists of

a total of 135 items (125 scored and 10 unscored). There is no penalty for guessing. Therefore- candidates should

attempt to answer all items. Candidates will be allowed 3 hours and 45 minutes to complete the Series 7 exam.

All candidate test scores are placed on a common scale using a statistical adjustment process known as equating.

Equating scores to a common scale accounts for the slight variations in difficulty that may exist among the different

sets of test items that candidates receive. This allows for a fair comparison of scores and ensures that every

candidate is held to the same passing standard regardless of which set of test items they received.

Candidates are not permitted to bring reference materials to their testing session. Severe penalties are imposed on

candidates who cheat or attempt to cheat on FINRA-administered exams.

Course Outline- test Syllabus

Function 1: Seeks Business for the Broker-Dealer from Customers and Potential

Customers

1.1 Contacts current and potential customers in person and by telephone- mail and electronic

means; develops promotional and advertising materials and seeks appropriate approvals to

distribute marketing materials

Knowledge of:

 Standards and required approvals of public communications

 Types of communications (e.g.- retail- institutional- correspondence)

 Seminars- lectures and other group forum requirements

 Product specific advertisements and disclosures

 Investment company products and variable contracts

 Options-related communications; options disclosure document (ODD)

 Municipal securities

 Research reports (e.g.- quiet periods- distribution- third-party research)

 Government securities- collateralized mortgage obligations (CMOs)- certificates of deposit (CDs)

FINRA Rules

– Communications with the Public

– Communications with the Public about Variable Life Insurance and Variable Annuities

– Use of Investment Companies Rankings in Retail Communications

– Requirements for the Use of Bond Mutual Fund Volatility Ratings

– Communications with the Public about Collateralized Mortgage Obligations (CMOs)

– Options Communications

– Members Responsibilities Regarding Deferred Variable Annuities

– Options

SEC Rules and Regulations

Securities Act of 1933

Section 5 – Prohibitions Relating to Interstate Commerce and the Mails

156 – Investment Company Sales Literature

482 – Advertising by an Investment Company as Satisfying Requirements of Section 10

498 – Summary Prospectuses for Open-End Management Investment Companies

Securities Exchange Act of 1934

15c2-12 – Municipal Securities Disclosure

15c3-3 – Customer Protection — Reserves and Custody of Securities

Cboe Rules

9.8 – Addressing of Communications to Customers

9.9 – Delivery of Current Options Disclosure Documents

9.15 – Options Communications

MSRB Rule

G-21 – Advertising

1.2 Describes investment products and services to current and potential customers with the intent of soliciting business

Knowledge of:

 Process for bringing new issues to market (e.g.- due diligence- registration statement- preliminary

prospectus- final prospectus- underwriting agreement- selling group agreement- blue-sky laws and

procedures)

 Regulatory requirements for initial public offerings (IPOs) (e.g.- restrictions on prospecting or soliciting-

allowable communications with the public)

 Primary financing for municipal securities (e.g.- competitive sale- negotiated sale- private offering- advance

refunding)

 Syndicate formation and operational procedures (e.g.- purpose of syndicate bid- roles and responsibilities of

underwriters- selling group concession and reallowance)

 Pricing practices and components of underwriters spread and determination of underwriters compensation

and selling practices

 Prospectus requirements (e.g.- timeliness of information- preliminary prospectus (red herring)- final

prospectus)

 Information required in a registration statement and offering material on new issue (e.g.- in pre-filing period-

in cooling-off period- in post-registration period)

 Official statements- preliminary official statements- notice of sale for municipal securities

 Qualified institutional buyer (QIB) and accredited investor

 Qualification requirements for Regulation A offerings (e.g.- filing of abbreviated registration statement and

offering circular

 Regulation D offerings (e.g.- exemption from SEC registration- access to capital markets- accredited

investors)

 Securities and transactions exempted from registration- including Section 3(a)(11) of the Securities Act of

1933 and Rule 147 thereunder (i.e.- intrastate offering)

 Regulatory requirements for private placements or resales

 Nonregistered foreign securities sold to institutions qualified in the U.S.

 Foreign securities prohibited from being sold to U.S. investors

FINRA Rules

– Networking Arrangements Between Members and Financial Institutions

– Tape Recording of Registered Persons by Certain Firms

– Corporate Financing Rule — Underwriting Terms and Arrangements

– Public Offerings of Securities with Conflicts of Interest

– Restrictions on the Purchase and Sale of Initial Equity Public Offerings

– New Issue Allocations and Distributions

– Sale of Securities in a Fixed Price Offering

– Disclosure of Price and Concessions in Selling Agreements

– Notification Requirements for Offering Participants

SEC Rules and Regulations

Securities Act of 1933

Section 3 – Exempted Securities

Section 4 – Exempted Transactions

– Communications Not Deemed a Prospectus

– Options Material Not Deemed a Prospectus

– Persons Deemed Not To Be Engaged in a Distribution and Therefore Not Underwriters

– Private Resales of Securities to Institutions

– Reclassification of Securities- Mergers- Consolidations and Acquisitions of Assets

– Intrastate Offers and Sales

– Post-filing Free Writing Prospectuses in Connection with Certain Registered Offerings

Securities Exchange Act of 1934

– Prohibition of Use of Manipulative or Deceptive Devices or Contrivances with Respect to Certain Securities Exempted from Registration

– Employment of Manipulative and Deceptive Devices by Brokers or Dealers

– Purchases of Certain Equity Securities by the Issuer and Others

– Delivery of Prospectus

– Records To Be Made by Certain Exchange Members- Brokers and Dealers

Regulation A – Conditional Small Issues Exemption

Regulation C – Registration

– Delayed or Continuous Offering and Sale of Securities

– Contents of Prospectus Used After Nine Months

– Prospectus for Use Prior to Effective Date

– Prospectus in a Registration Statement at the Time of Effectiveness

– Prospectus in a Registration Statement After Effective Date

– Conditions to Permissible Post-filing Free Writing Prospectuses

Regulation D – Rules Governing the Limited Offer and Sale of Securities Without Registration Under the Securities Act of 1933

– Use of Regulation D

– Definitions and Terms Used in Regulation D

– General Conditions to be Met

– Filing of Notice of Sale

– Exemption for Limited Offerings and Sales of Securities Not Exceeding $5-000-000

– Exemption for Limited Offers and Sales Without Regard to Dollar Amount of Offering

– Disqualifying Provision Relating to Exemptions under Rules 504 and 506

– Insignificant Deviations from a Term- Condition or Requirement of Regulation D

Regulation M

Regulation S – Rules Governing Offers and Sales Made Outside the United States Without Registration Under the Securities Act of 1933

Trust Indenture Act of 1939

MSRB Rules

– Primary Offering Practices

– Transactions with Employees and Partners of Other Municipal Securities Professionals

– Disclosures in Connection with Primary Offerings

– CUSIP Numbers- New Issue- and Market Information Requirements

– Solicitation of Municipal Securities Business

Function 2: Opens Accounts After Obtaining and Evaluating Customers Financial

Profile and Investment Objectives

2.1 Informs customers of the types of accounts and their appropriateness and provides

disclosures regarding various account types and restrictions

Knowledge of:

 Types of accounts (e.g.- pattern day trading- prime brokerage- delivery verses payment/receive versus

payment (DVP/RVP)- advisory or fee-based)

 Account registration types (e.g.- tenants in common (TIC)- community property- sole proprietorship-

partnership- unincorporated associations)

 Requirements for opening customer accounts

 Retirement plans and other tax advantaged accounts

 Transfers- rollovers- eligibility- distribution strategies and taxation (e.g.- types of allowable contributions-

distribution options- taxation of distribution at retirement- age restrictions for distributions- permissible

investments)

 Employer-sponsored plans and ERISA (e.g.- 457- defined benefit- profit-sharing- stock options and

stock purchase- non-qualified deferred compensation programs)

 Wealth events (e.g.- inheritance)

 Account registration changes and internal transfers

FINRA Rules

2270 – Day-trading Risk Disclosure Statement

2130 – Approval Procedures for Day-trading Accounts

4512 – Customer Account Information

4514 – Authorization Records for Negotiable Instruments Drawn from a Customers Account

4515 – Approval and Documentation of Changes in Account Name or Designation

Cboe Rule

9.1 – Opening of Accounts

Internal Revenue Code

219 – Retirement Savings

415 – Limitations on Benefits and Contributions Under Qualified Plans

529 – Qualified Tuition Programs

530 – Coverdell Education Savings Accounts

Employee Retirement Income Security Act of 1974 (ERISA)

2.2 Obtains and updates customer information and documentation- including required legal

documents and identifies and escalates suspicious activity

Knowledge of:

 Customer screening (e.g.- customer identification program (CIP)- know-your-customer (KYC)- domestic or

foreign residency and/or citizenship- corporate insiders- employees of broker-dealers or self-regulatory

organizations (SROs))

 Information security and privacy regulations (e.g.- initial privacy disclosures to customers- opt-out notices-

disclosure limitations- exceptions)

 Account authorizations (e.g.- power of attorney (POA)- trust documents- corporate resolutions- trading

authority- discretionary account documents)

FINRA Rule

408T – Discretionary Power in Customers Accounts

2090 – Know Your Customer

3260 – Discretionary Accounts

SEC Rules and Regulations

Securities Exchange Act of 1934

Section 3(a)(35) – Definitions and Application of Title – “Investment Discretion”

Regulation S-P – Privacy of Consumer Financial Information and Safeguarding Personal Information

Cboe Rule

9.4 – Discretionary Accounts

2.3 Makes reasonable efforts to obtain customer investment profile information including- but

not limited to- the customer's other security holdings- financial situation and needs- tax

status and investment objectives

Knowledge of:

 Essential facts regarding customers and customer relationships

 Financial factors relevant to assessing a customers investment profile

 Security holdings- other assets and liabilities- annual income- net worth- tax considerations

 Other considerations (e.g.- age- marital status- dependents- employment- investment experience- home ownership and financing- employee stock options- insurance- liquidity needs)

 Investment objectives (e.g.- preservation of capital- income- growth- speculation)

 Reasonable-basis suitability- customer-specific suitability and quantitative suitability

 Investment strategies and recommendations to hold

 Verification of investor accreditation and sophistication

FINRA Rules

2111 – Suitability

2214 – Requirements for the Use of Investment Analysis Tools

MSRB Rule

G-19 – Suitability of Recommendations and Transactions

2.4 Obtains supervisory approvals required to open accounts

Knowledge of:

 Required review- approvals and documentation for account opening and maintenance

 Physical receipt- delivery and safeguarding of cash or cash equivalents- checks and securities

 Circumstances for refusing or restricting activity in an account or closing accounts

FINRA Rules

3110 – Supervision

3120 – Supervisory Control System

Cboe Rule

9.2 – Supervision of Accounts

MSRB Rule

G-27 – Supervision

Function 3: Provides Customers with Information About Investments- Makes Suitable

Recommendations- Transfers Assets and Maintains Appropriate Records

3.1 Provides customers with information about investment strategies- risks and rewards- and communicates relevant market- investment and research data to customers

Knowledge of:

 Customer-specific factors that generally affect the selection of securities (i.e.- customers investment profile-

including the customers risk tolerance- investment time horizon and investment objectives- liquidity needs)

 Portfolio or account analysis and its application to security selection (e.g.- diversification- asset allocation

principles- concentration- volatility- potential tax ramifications)

 Portfolio theory (e.g.- alpha and beta considerations- Capital Asset Pricing Model (CAPM))

 Delivery of annual reports and notices of corporate actions (e.g.- dividends- splits- odd lot tenders)

 Fundamental analysis of financial statements and types of financial statements included in an annual report-

importance of footnotes- material risk disclosures and key terms (e.g.- assets- liabilities- capital- cash flow-

income- earnings per share (EPS)- book value- shareholders' equity- depreciation- depletion- goodwill)

 Balance sheet and methods of inventory valuation: last-in- first out (LIFO)- first-in- first-out (FIFO) and

methods of depreciation

 Income statement and calculations derived from an income statement: earnings before interest and taxes

(EBIT); earnings before taxes (EBT); net profit; and earnings before interest- taxes- depreciation and

amortization (EBITDA)

 Principal tools to measure financial health

 Liquidity: working capital- current ratio- quick assets- acid test ratio

 Risk of bankruptcy: bond ratio- debt-to-equity ratio

 Efficient use of assets: inventory turnover ratio- cash flow

 Profitability: margin-of-profit ratio- net profit ratio- asset coverage and safety of income (i.e.- net asset

value (NAV) per bond- bond interest coverage- book value per share)

 EPS: fully diluted EPS- price-earnings (P/E) ratio- dividend payout ratio- current yield

 Competitiveness (comparative performance): return on common equity

SEC Rules and Regulations

Securities Exchange Act of 1934

14e-3 – Transactions in Securities on the Basis of Material- Nonpublic Information in the Context of

Tender Offers

14e-4 – Prohibited Transactions in Connection with Partial Tender Offers

Cboe Rule

9.3 – Suitability of Recommendations

3.2 Reviews and analyzes customers' investment profiles and product options to determine

suitable investment recommendations

Knowledge of:

Equity securities

 Types of stock (e.g.- authorized- issued- outstanding- Treasury stock- stated value)

 Characteristics of common stock

 Rights of common stockholders (e.g.- pre-emptive right- pro rata share of dividends- access to

corporate books- voting power (statutory- cumulative- nonvoting)- residual claims on corporate assets)

 Spinoffs

 Stock acquired through a consolidation or transfer

 Penny stocks and rules associated with penny stock transactions

 Characteristics of preferred stock

 Types of preferred stock (e.g.- cumulative- non-cumulative- participating- nonparticipating- convertible-

callable- adjustable-rate and variable-rate)

 Rights of preferred stockholders (e.g.- preference upon corporate dissolution- dividend payment-

conversions- sinking fund provisions)

 Rights and warrants: origination- exercise terms- relationship of subscription price to market price of

underlying stock- anti-dilution agreement

 Electronic exchanges or auction markets (e.g.- electronic communications networks (ECNs)- over-thecounter (OTC)- dark pools of liquidity)

 Types and characteristics of non-U.S. market securities (e.g.- American Depositary Receipts (ADRs)-

corporate equity)

 Tax treatment of equity securities transactions

 Capital gains and losses- dividend distributions (qualified and non-qualified)- wash sales- holding

periods

 Determination of net long-term and short-term gains or losses

 When-issued securities- securities acquired through conversion

 Calculation of cost basis per share on: purchases- exchange of convertibles for common shares- stock

dividends and stock rights- inherited or gifted securities

 Cost valuation: FIFO- LIFO- identified shares

Packaged products

 Investment companies- exchange-traded funds (ETFs)- unit investment trusts (UITs)

 Types of mutual funds: equity- fixed income- money market- interval

 Structure of investment companies (e.g.- open-end and closed-end funds)

 Fund objectives (e.g.- value- growth- income- balanced- international- sector- life cycle)

 Characteristics of:

 Open-end funds: e.g.- NAV- forward pricing- offering price- exchange privileges within families of

funds- fees and expenses: no load- load (front-end- back-end)- distribution fees- management fees-

nature of 12b-1 fees

 Closed-end funds: distributed in primary market at IPO price- traded in secondary market

 Sales practices (e.g.- dollar-cost averaging (DCA)- computing sales charge- breakpoints)

 Redemption (e.g.- redemption price- payout or withdrawal plans- conversion privilege- restrictions-

contingent deferred sales charge- tenders)

 Tax treatment of mutual funds

 Reinvestment of dividends and capital gain distributions

 Charges and expenses

 Variable life insurance/annuity contracts

 Characteristics and insurance features (e.g.- minimum guarantees- death benefits- living benefits-

riders)

 Separate accounts (e.g.- purpose- management of portfolio- investment policies- performance of

account)

 Valuation of a variable annuity contract (e.g.- accumulation units- surrender value- annuitization units)

 Purchasing or exchanging variable annuities (e.g.- immediate annuity- charges- fees- penalties- right of

accumulation (ROA)- waiver of premium)

 Annuitization: types of election- variable payout- assumed interest rate- relationship between assumed

interest rate and genuine rate of return

 Tax treatment of variable annuity contracts during accumulation period and annuity period and taxation

at surrender of contract

 Real estate investment trusts (REITs)

 Structure (e.g.- finite number of shares- distributed in primary market at IPO price- traded in secondary

market- premiums and discounts to NAV)

 Types and characteristics (e.g.- equity REIT- mortgage REIT- hybrid REIT)

 Tax treatment (e.g.- dividends- capital gains- distributions)

 Direct participation programs (DPPs)

 General characteristics

 Structures (e.g.- limited partnerships (e.g.- roles and duties of general partners vs. limited

partners)- limited liability companies- corporations that have tax pass-through exemption from the

IRS)

 Tax treatment (e.g.- flow-through of income- expenses and tax liability- real estate depreciation- oil

and gas tax advantages)

 Types of DPPs (e.g.- real estate- oil and gas- small-cap debt and equity- business development

companies (BDCs)- equipment leasing) and their investment advantages- risks and tax implications

 Types of DPP offerings (i.e.- private placements and public offerings)

 Evaluation of DPPs (e.g.- economic soundness of the program- expertise of the general partner- basic

objectives of the program; start-up costs- leverage and other revenue considerations)

Options

 Listed options and their characteristics (e.g.- contract specifications and adjustments- dividends-

exercise/assignment- settlement date- opening and closing transactions- values (premium- intrinsic and

time)- volume- open interest- position limits- exercise limits)

 The Options Clearing Corporation (OCC)

 American-style and European-style

 Long-term Equity AnticiPation Securities (LEAPS)

 Basic strategies (e.g.- covered writing and hedging for equity- index- foreign currency and yield-based options)

 Protective put for equity and index options

 Covered call and put writing for equity options

 Advanced strategies (e.g.- spreads- straddles- combinations- uncovered writing)

 Long (debit) and short (credit) spreads

 Straddle/combination for equity and index options

 Uncovered (naked) call or put writing for equity- index and yield-based options

 Profit and loss calculations- break-even points- economics of positions

 Tax treatment of option transactions (equity- index- foreign currency- yield-based)

Debt Securities

 Types of debt securities and money market instruments (e.g.- corporate commercial paper- brokered CDs-

Eurodollar bond- variable-rate preferreds)

 Characteristics: structure- risks and rewards- call provisions

 Structured products (e.g.- equity-linked securities- exchange-traded notes (ETNs))

 Types and characteristics of non-U.S. market securities (e.g.- sovereign and corporate debt)

 Types of yields (e.g.- coupon (nominal)- current- yield to maturity (YTM)- yield to call (YTC)- yield to worst

and discount yield- calculations and relationship to price)

 Bond ratings

 Tax implications of taxable debt securities- including original issue discount (OID) rules- interest- principal-

premiums- discounts- and capital gains and losses

Corporate bonds

 Types of corporate bonds (e.g.- mortgage bonds- equipment trust certificates- debentures- step coupon

bonds- zero-coupon bonds- convertible bonds- high-yield bonds- income bonds) and their characteristics

 Convertible bonds: general characteristics- (e.g.- conversion privilege- fixed versus variable- conversion ratio

or price- calculation of parity price of underlying security- arbitrage- factors influencing conversion)

Municipal securities

 General characteristics of municipal fund securities- method of quotations (e.g.- yield/basis price- dollar

price)- interest rate- payment periods- denominations- diversity of maturities (e.g.- serial- term) and legal

opinion (purpose and contents)

 Analysis and diversification of municipal investments: geographical- type and rating

 Analysis of general obligation (GO) bonds- including: characteristics of the issuer- nature of the issuers

debt- factors affecting the issuers ability to pay- municipal debt ratios

 Analysis of revenue bonds- including feasibility studies- sources of revenue- security (protective covenants

of bond indenture)- financial reports and outside audits- restrictions on the issuance of additional bonds- flow

of funds- earnings coverage- sources of credit information- rating services- credit enhancements

 Purpose and characteristics of specific types of municipal securities:

 Types of municipal bonds (e.g.- GO bonds- limited tax GO bonds and notes- revenue bonds- short-term

municipal obligations (e.g.- tax anticipation notes (TANs)- bond anticipation notes (BANs)- revenue

anticipation notes (RANs)- tax-exempt commercial paper- grant anticipation notes (GANs)- tax and

revenue anticipation notes (TRANs)))

 Special tax- special exam- moral obligation- advance or pre-refunded- double-barreled- taxable

(e.g.- Build America bonds)- OIDs- zero-coupon (capital appreciation) bonds- certificates of participation

(COPs)- alternative minimum tax (AMT)- lease revenue- variable rate securities- auction rate securities

 Municipal fund securities including 529 college savings plans- local government investment pools

(LGIPs)- ABLE accounts (e.g.- change in beneficiary- rollovers- ownership- tax consequences of

unqualified withdrawals)

 Call features (e.g.- par or premium- optional- mandatory- partial call- sinking fund- extraordinary calls-

make whole calls)- advantages/disadvantages to issuers and investors

 Put or tender options

 Refunding methods: direct exchange versus sale of new issue- advance refunding- refunding at call

dates/current refunding- escrowed to maturity- crossover refunding

 Factors affecting the marketability of municipal bonds: rating- maturity- call features- interest (coupon) rate-

block size- liquidity (ability to sell the bond in the secondary market)- dollar/yield price- issuer name (local or

national reputation)- credit enhancement- credit and liquidity support- denominations

 Pricing of municipal securities and other mathematical calculations: dollar price- accrued interest (regular

coupon- odd first coupon)- computations of accrued interest (30/360)- amortization of premium- accretion of

discount- relationship of bond prices to changes in maturity- coupon- various yield calculations (taxable

equivalent yield- net yield after capital gains tax- current yield- YTC on premium bonds) value of basis point-

in default-

 Tax treatment of municipal securities: securities bought at a discount or premium in the secondary market-

OID- federal income tax status- state and local tax status- computation of taxable equivalent yield- accrued

interest- AMT- bonds- taxable bonds- bank qualified bonds

Registered hedge funds and fund of funds

 Structure (e.g.- private placements- registered- exemption from registration under the Investment Company

Act of 1940- blind pool/ blank check)

 Characteristics (e.g.- limited or no liquidity- limited available information- lock-up provisions- charges and

expenses- tangible assets- wide array of investment styles- models and vehicles)

 Tax treatment of distributions

Asset-backed securities

 Collateralized mortgage obligations (CMOs)

 Collateralized debt obligations (CDOs)

 Characteristics (e.g.- indenture- maturities- form of ownership- interest payment periods- call and put

features- calculation of accrued interest- and specific characteristics (e.g.- maturity- type of collateral- priority

of claim- call provisions))

U.S. Treasury securities

 Treasury bills- notes- bonds

 Treasury receipts (Separate Trading of Registered Interest and Principal Securities (STRIPS)/zero-coupon)

 Treasury Inflation Protected Securities (TIPS)

 Characteristics (e.g.- types- maturities- denominations- payment of interest)

U.S. government agency securities

 Government National Mortgage Association (GNMA)

 Federal National Mortgage Association (FNMA)

 Federal Home Loan Mortgage Corporation (FHLMC)

 Student Loan Marketing Association (SLMA)

 Characteristics: types- maturities- denominations- primary dealers- distribution- issue form- quotations- passthrough- calculating a spread- pricing- payment of interest and principal

FINRA Rules

2114 – Recommendations to Customers in OTC Equity Securities

2121 – Fair Prices and Commissions

2122 – Charges for Services Performed

2124 – Net Transactions with Customers

2310 – Direct Participation Programs

2320 – Variable Contracts of an Insurance Company

2341 – Investment Company Securities

2350 Series – Trading in Index Warrants- Currency Index Warrants- and Currency Warrants

4210(f)(2) – Definitions Related to Options- Currency Warrants- Currency Index Warrants and Stock Index

Warrant Transactions

SEC Rules and Regulations

Securities Exchange Act of 1934

Section 9(a) – Prohibition Against Manipulation of Security Prices (Transactions Relating to Purchase

or Sale of Security)

Exemption of Certain Issuers from Section 15(D) of the Act

3a51-1 – Definition of "Penny Stock"

15g-1 – Exemptions for Certain Transactions

15g-2 – Penny Stock Disclosure Document Relating to the Penny Stock Market

15g-5 – Disclosure of Compensation of Associated Persons in Connection with Penny Stock Transactions

15g-9 – Sales Practice Requirements for Certain Low-priced Securities

Investment Company Act of 1940

Section 2(a) – General Definitions

Section 10 – Affiliations or Interest of Directors- Officers and Employees

Section 12(a) – Functions and Activities of Investment Companies (Purchase of Securities on Margin;

Joint Trading Accounts; Short Sales of Securities; Exceptions)

Section 13(a) – Changes in Investment Policy (Prohibited Actions for Registered Investment

Companies)

Section 15(a) – Investment Advisory and Underwriting Contracts (Written Contract to Serve or Act as

Investment Adviser; Contents)

Section 16(a) – Changes in Board of Directors; Provisions Relative to Strict Trusts (Election of

Directors)

Section 17(a) – Transactions of Certain Affiliated Persons and Underwriters (Prohibited Transactions)

Section 18 – Capital Structure

Section 19 – Dividends

Section 22 – Distribution- Redemption- and Repurchase of Redeemable Securities

Section 23 – Distribution and Repurchase of Securities: Closed-end Companies

Section 30 – Periodic and Other Reports; Reports of Affiliated Persons

Section 35 – Unlawful Representations and Names

Section 36 – Breach of Fiduciary Duty

Section 37 – Larceny and Embezzlement

12b-1 – Distribution of Shares by Registered Open-end Management Investment Company

Cboe Rules

1.1 – Definitions

4.5 (f) – Long-term Equity Option Series (LEAPS®)

4.6 – Adjustments

6.20 (e) – Practice of American-style Index Options

6.21 – Allocation of Practice Notices

8.1 – Just and Equitable Principles of Trade

8.3 – Position Limits

8.31 – Position Limits for Broad-based Index Options

8.32 – Position Limits for Industry Index Options

8.41– Position Limits — Interest Rate Options

8.42 (b) – Practice Limits — Index Options

8.42 (f) – Practice Limits — Interest Rate Options

11.1 – Practice of Option Contracts

MSRB Rules

D-12 – Definition of Municipal Fund Securities

G-13 – Quotations Related to Municipal Securities

G-17 – Conduct of Municipal Securities Activities

G-30 – Prices and Commissions

G-45 – Reporting of Information on Municipal Fund Securities

Real Estate Investment Trusts (REITs)

REIT Modernization Act of 1999

Internal Revenue Code

301 – Distributions of Property

316 – Dividend Defined

856 – Definition of Real Estate Investment Trust

858 – Dividends Paid by Real Estate Investment Trust After Close of Tax Year

1035 – Certain exchanges of Insurance Policies

1091 – Loss from Wash Sales of Stock or Securities

1233 – Gains and Losses from Short Sales

1256 – Contracts Marked to Market

3.3 Provides appropriate disclosures regarding investment products and their characteristics-

risks- services and expenses

Knowledge of:

 Required disclosures on specific transactions (e.g.- material aspects of investments- statement of additional

information- material events- control relationships)

 Types of investment risk (e.g.- call- systematic and nonsystematic- reinvestment- timing)

 Types of investment returns (e.g.- tax-exempt interest- return of capital)

 Costs and fees associated with investments (e.g.- markups- commissions- net transactions- share classes-

non-discretionary fee-based accounts- surrender charges- 12b-1 fees- mortality and expense charges in

variable products- soft dollar arrangements)

 Tax considerations (e.g.- unification of gift and estate taxes- lifetime exclusion- annual gift limit- taxation of

securities received as a gift- inheritance of securities)

 Market analysis considerations (e.g.- market sentiment- market indexes- options volatility- put/call ratio-

market momentum- available funds- trading volume- short interest- index futures)

 Market analysis considerations for municipal securities- including Bond Buyer indexes (e.g.- 11 GO Bonds

Index- Municipal Bond Index (40 Bond)- 20 GO Bonds Index)

 Technical analysis of basic chart patterns and key terms (e.g.- trend lines- saucer/inverted saucer- headand-shoulders/inverted head-and-shoulders- breakouts- resistance/support levels- moving averages-

consolidation- stabilization- overbought and oversold)

 Disclosure of material events effecting retail sales of municipal bonds

FINRA Rule

2165 – Financial Exploitation of Specified Adults

SEC Rules and Regulations

Securities Exchange Act of 1934

Section 28(e) – Effect on Existing Law (Exchange- Broker- and Dealer Commissions; Brokerage and

Research Services)

Internal Revenue Code

2503 – Taxable Gifts

3.4 Communicates with customers about account information- processes requests and retains

documentation

Knowledge of:

 Customer confirmations and statements- including: components- timing- mailings to third parties- and

exceptions

 Account value- profits and losses- realized and unrealized

 Withdrawals and tenders

 Customer account records (e.g.- updating for change of address- sending required notifications- investment

objectives)

 Transferring accounts between broker-dealers (e.g.- Automated Customer Account Transfer Service

(ACATS)- transfer agent and procedures)

 Books and records retention requirements

 Account closure procedures

FINRA Rules

409T – Statements of Accounts to Customers

2231 – Customer Account Statements

2232 – Customer Confirmations

2273 – Educational Communication Related to Recruitment Practices and Account Transfers

4510 – Books and Records Requirements

11870 – Customer Account Transfer Contracts

SEC Rules and Regulations

Securities Exchange Act of 1934

10b-10 – Confirmation of Transactions

15g-6 – Account Statements for Penny Stock Customers

17a-4 – Records To Be Preserved by Certain Exchange Members- Brokers and Dealers

Regulation FD – Disclosure Requirements

Cboe Rules

6.1 – Reporting duties

7.1 – Maintenance- Retention and Furnishing of Books- Records and Other Information

7.2 – Reports of Uncovered Short Positions

7.3 – Financial Reports

7.4 – Audits

7.5 – Automated Submission of Trading Data

7.7 – Risk Analysis of Market-maker Accounts

7.8 – Risk Analysis of Portfolio Margin Accounts

7.9 – Regulatory Cooperation

9.5 – Confirmation to Customers

9.6 – Statements of Accounts to Customers

9.14 – Transfer of Accounts

MSRB Rules

G-8 – Books and Records To Be Made by Brokers- Dealers- and Municipal Securities Dealers and Municipal

Advisors

G-9 – Preservation of Records

G-15 – Confirmation- Clearance- Settlement and Other Uniform Practice Requirements with Respect to

Transactions with Customers

G-26 – Customer Account Transfers

Function 4: Obtains and Verifies Customers Purchase and Sales Instructions and

Agreements; Processes- Completes and Confirms Transactions

4.1 Provides current quotes

Knowledge of:

 Orders- offerings and transactions in customer accounts (e.g.- at advertised yield)

 Trade execution activities

 Types of securities quotes (e.g.- firm- subject)

 Types of orders (e.g.- all-or-none (AON)- fill-or-kill (FOK)- immediate-or-cancel (IOC)- not-held- market-onclose (MOC)- spread- straddle)

 Short sale requirements and strategies (e.g.- order marking- locate- borrow and delivery- speculation-

hedging- arbitrage)

 Securities lending (e.g.- hard to borrow- fail to deliver)

 Best execution obligations

FINRA Rules

4320 – Short Sale Delivery Requirements

4551 – Requirements for Alternative Trading Systems to Record and Transmit Order and Execution

Information for Security Futures

5210 – Publication of Transactions and Quotations

5220 – Offers and Stated Prices

5260 – Prohibition on Transactions- Publication of Quotations- or Publication of Indications of Interest During

Trading Halts

5290 – Order Entry and Execution Practices

5310 – Best Execution and Interpositioning

6100 Series – Quoting and Trading in NMS stocks

6110 – Trading Otherwise than on an Exchange

6120 – Trading Halts

6121 – Trading Halts Due to Extraordinary Market Volatility

6130 – Transactions Related to Initial Public Offerings

6400 Series – Quoting and Trading in OTC Equity Securities

6500 Series – OTC Bulletin Board® Service

6600 Series – OTC Reporting Facility

11860 – COD Orders

SEC Rules and Regulations

Securities Exchange Act of 1934

15c2-7 – Identification of Quotations

15c2-11 – Initiation or Resumption of Quotations Without Specified Information

15g-3 – Broker or Dealer Disclosure of Quotations and Other Information Relating to the Penny Stock

Market

15g-4 – Disclosure of Compensation to Brokers or Dealers

Regulation ATS – Alternative Trading Systems

Regulation SHO – Regulation of Short Sales

Cboe Rules

5.33 – Certain Types of Orders Defined

5.7 – Required Order Information

NYSE Rules

7.12 – Trading Halts Due to Extraordinary Market Volatility

7.31 – Orders and Modifiers

7.35 Series – Auctions

7.37 – Order Execution and Routing

54 – Dealings on the Floor-persons

64 -- Bonds- Rights and 100-Share-Unit Stocks

71 – Precedence of Highest Bid and Lowest Offer

72(d) – Priority of Cross Transactions and Supplemental Material .10 – Definition of a Block

74 – Publicity of Bids and Offers

75 – Disputes as to Bids and Offers

76 – “Crossing” Orders

77 – Prohibited Dealings and Activities

80B – Trading Halts Due to Extraordinary Market Volatility

104 – Dealings and Responsibilities of DMMs

123A – Miscellaneous Requirements

123D(d) – Initial Listing Regulatory Halt

127 – Block Crosses Outside of the Prevailing NYSE Quotation

1000 – Automatic Executions

1001 – Execution of Automatically Executing Orders

1002 – Availability of Automatic Execution Feature

1004 – Election of Buy Minus Zero Plus Orders

4.2 Processes and confirms customers transactions pursuant to regulatory requirements and

informs customers of delivery obligations and settlement procedures

Knowledge of:

 Information required on an order ticket (e.g.- symbol- account number- price)

 Market making activities: role and functions of the designated market maker- listing requirements- limitations

on trading during significant market declines- principal transactions- agency transactions- quotations (e.g.-

firm- subject or otherwise qualified- bid wanted- offer wanted- size obligations)- SEC order handling rules-

transaction reporting

 Use of automated execution systems

 Regulatory reporting requirements (e.g.- Order Audit Trail System (OATS)- Trade Reporting and

Compliance Engine (TRACE)- Electronic Municipal Market Access (EMMA)- trade reporting facility (TRF)-

Real-Time Transaction Reporting System (RTRS))

 Delivery requirements

 Good delivery (e.g.- certificates in possession of the seller- certificates in the name of two persons-

deceased owner- stock or bond powers- mutilated certificates- due bills- DVP/RVP- book entry securities-

stock certificate- endorsements- denominations- bearer- registrar- registered- Direct Registration System

(DRS))

 Settlement of transactions (e.g.- security-specific requirements- when-- as- and if-issued- ex-rights- exdividends- due bill checks- negotiated settlements- option exercise/assignment- dont know (DK)-

extensions)

FINRA Rules

5330 – Adjustment of Orders

6000 Series – Quotation- Order- and Transaction Reporting Facilities

6140 – Other Trading Practices

6700 Series – Trade Reporting and Compliance Engine

7000 Series – Clearing- Transactions and Order Data Requirements- and Facility Charges

11000 Series – Uniform Practice Code

SEC Rules and Regulations

Securities Exchange Act of 1934

15c6-1 – Settlement Cycle

Cboe Rules

6.20 – Practice of Options Contracts

6.21 – Allocation of Practice Notices

6.22 – Delivery and Payment

MSRB Rules

G-12 – Uniform Practice

G-14 – Reports of Sales or Purchases

Nasdaq Stock Market Rules

4600 Series – Requirements for Nasdaq Market Makers and Other Nasdaq Market Center Participants

4750 Series – Nasdaq Market Center-Execution Services

NYSE Rules

63 – “When Issued”— “When Distributed”

130 Series – Comparison and Exchange of Contracts

133 – Comparison—Non-cleared Transactions

135 – Differences and Omissions—Cleared Transactions (“DKs”)

136 – Comparison—Transactions Excluded from a Clearance

4.3 Informs the appropriate supervisor and assists in the resolution of discrepancies- disputes-

errors and complaints

Knowledge of:

 Erroneous reports- errors- cancels and rebills

 Requirements for addressing customer complaints and consequences of improper handling of complaints

 Methods of formal resolution (e.g.- arbitration- mediation- litigation)

 Form U4 reporting requirements

FINRA Rules

4513 – Records of Written Customer Complaints

4530 – Reporting Requirements

8000 Series – Investigations and Sanctions

11892 – Clearly Erroneous Transactions in Exchange-listed Securities

11893 – Clearly Erroneous Transactions in OTC Equity Securities

12000 Series – Code of Arbitration Procedure for Customer Disputes

13000 Series – Code of Arbitration Procedure for Industry Disputes

14000 Series – Code of Mediation Procedure

Cboe Rules

5.11 – Price Binding Despite Erroneous Report

9.17 – Customer Complaints

4.4 Addresses margin issues

Knowledge of:

 Requirements and characteristics of margin accounts (e.g.- minimums- approvals- ineligible accounts-

eligible/ineligible securities)- and required disclosures (e.g.- interest rate disclosure and hypothecation)

 Product or strategy specific requirements (e.g.- Treasury securities- mutual funds)

 Calculations in margin accounts (e.g.- long and/or short positions)

 Initial margin: long market value- short market value- debit balance- credit balance- initial Regulation T

margin requirement on long or short positions- Regulation T requirement for established accounts- loan

value- excess equity- buying power of deposited securities

 Maintenance: additional purchases- sales (long or short)- cash withdrawals- stock withdrawals- simultaneous

purchases and sales- restrictions- liquidation to meet a margin/maintenance call- deposit of cash or

securities required to meet a margin or maintenance call

 Special memorandum account (SMA): balance- buying power- prohibited use of SMA- effect of excess

equity- deposit of marginable securities- receipt of cash dividends and earned interest- liquidation of

securities in the account- cash or securities withdrawals- new margin securities purchased or sold short

 Other margin accounts (e.g.- portfolio margin- day trading)

FINRA Rules

2264 – Margin Disclosure Statement

4210 – Margin Requirements

Cboe Rules

10.1 – General Rules

10.2 – Time Margin Must Be Obtained

10.3 – Margin Requirements

10.4 – Portfolio Margin

10.5 – Determination of Value for Margin Purposes

10.6 – "When Issued" and "When Distributed" Securities

10.7 – Guaranteed Accounts

10.8 – Meeting Margin Calls by Liquidation Prohibited

10.9 – Margin Required Is Minimum

10.10 – Compliance with Margin Requirements of New York Stock Exchange

10.11 – Daily Margin Record

Federal Reserve

Regulation T – Credit by Brokers and Dealers

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References :

Number	Section	Weight
Function 1	Seeks Business for the Broker-Dealer from Customers	7%
Function 2	Opens Accounts after Obtaining Customer Profiles	9%
Function 3	Provides Investment Information and Makes Suitable Recommendations	73%
Function 4	Obtains/Verifies Instructions and Processes Transactions	11%