Series-7 - Obtains and Verifies Customers' Purchase and Sales Instructions and Agreements; Processes, Completes and Confirms Transactions (11% of the exam) - Section 4.2

Apply settlement, good-delivery, and confirmation requirements, Regulation T margin rules, and the resolution of trade discrepancies, disputes, and complaints.

Apply the regular-way settlement cycle, good-delivery requirements, and the components and timing of customer confirmations and statements, including trade reporting through TRACE and the MSRB's EMMA. Compute Regulation T initial margin and maintenance requirements, including long and short market value, debit and credit balances, and the special memorandum account (SMA), and identify the proper handling of complaints and the FINRA arbitration and mediation process for resolving disputes.

Regular-way settlementRegulation TMaintenance marginSpecial memorandum accountFINRA arbitration

Practice question for this objective

Free sampleObtains and Verifies Customers' Purchase and Sales Instructions and Agreements; Processes, Completes and Confirms Transactionshard

Mr. Bianchi sold short $20,000 of stock, met the 50% Regulation T requirement, and now carries a credit balance of $30,000. The stock has risen so the short market value is $25,000. Under the FINRA 30% short maintenance requirement, what is the amount of his maintenance call?

A$1,250
B$2,500 Correct
C$5,000
D$7,500

Compute a short maintenance call as 30% of short market value minus equity, where equity is the credit balance less short market value. For short accounts FINRA requires equity of at least 30% of short market value. Required equity is 0.30 times $25,000, which is $7,500, while actual equity is the $30,000 credit less the $25,000 short market value, or $5,000. The call is the $2,500 deficiency.

Why A is wrong: This applies the 25% long maintenance rate to the $25,000 short market value, giving $6,250 required and a $1,250 shortfall. Short positions use the higher 30% rate, not 25%.

Why B is correct: Required equity is 30% of the $25,000 short market value, or $7,500. Current equity is the $30,000 credit minus $25,000, or $5,000, so the call is $7,500 minus $5,000, which is $2,500.

Why C is wrong: This is the current equity, found as the $30,000 credit minus the $25,000 short market value. It is the equity on hand, not the additional deposit the call requires.

Why D is wrong: This is the full 30% maintenance requirement on the $25,000 short market value. The call is only the deficiency below that requirement, not the entire required equity.

See more Series-7 practice questions, answers explained.

Exam traps in Obtains and Verifies Customers' Purchase and Sales Instructions and Agreements; Processes, Completes and Confirms Transactions

Answers that look right on this material and are not. Each one is a distractor from a different question in the Series-7 bank for this domain.

$2,000
Why it is wrong: This uses a 30% maintenance rate, which applies to short positions rather than long positions. Applying 30% of $20,000 gives $6,000 required and a $2,000 shortfall, but the long rate is 25%.
$18,750
Why it is wrong: This multiplies the $15,000 debit by 1.25, applying the 25% figure as a mark-up on the debit. The maintenance point depends on equity being 25% of market value, not on inflating the debit.
50 per cent of the market value for a long position, and 50 per cent of the market value for a short position.
Why it is wrong: 50 per cent is the Regulation T initial requirement applied at the time of the trade, not the ongoing FINRA maintenance floor, so this pairing confuses initial margin with maintenance margin.

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