General Securities Representative Exam (Series 7) Study Guide

The Series 7 does not ask you to define things. Almost every item in our bank starts with a person: a customer who wants something, a representative who did something, an issuer with a financing problem. Your job is to identify which rule or calculation the situation triggers and apply it. That is why stems run long and why the correct choice often carries a reason clause. Read the reason as part of the answer, because distractors on this exam love to pair a true conclusion with a false reason.

Three stem shapes to recognize

• Apply-the-rule scenarios. A fact pattern followed by what must the firm do or how is this treated. Find the one detail that decides it: the head count, the holding period, the account registration.
• Arithmetic with a built-in wrong turn. Options breakevens, margin deposits, accrued interest, taxable-equivalent yield. Every distractor is a plausible miscalculation, so compute before you look at the choices.
• EXCEPT, LEAST and BEST forms. A NOT-required stem inverts the search, so you hunt the outlier among true statements; a BEST stem offers several defensible choices and wants the tightest fit to the constraint the customer stated.

Scored versus pretest, and what it does to pacing

You answer 130 items: 125 scored and 5 unscored pretest questions. Pretest items are not flagged, so an oddly worded question is not evidence that it does not count. The clock is 225 minutes, and the passing score is 72, reached through equating rather than a fixed raw count. Never skip a hard calculation on the theory that it is a pretest item, and never let one hard item eat the time budget of several ordinary ones.

How to use this bank

Our bank holds 200 published questions across 7 study categories, and this guide maps those categories onto FINRA's four job functions. First pass: work one function section at a time and read every explanation, including the ones you answered correctly, because each explanation names distractor logic you will meet again. Second pass: mixed, timed sets from the practice page, since the live exam interleaves functions and switching context costs time.

Seeking business for the broker-dealer is the first job function: 9 scored questions, 7% of the exam, the smallest slice and the cheapest points, because each item turns on a single fact. In our bank it draws from the New Issues, Regulations and Business Conduct category (communications, gifts, restricted persons) and from Suitability and Customer Accounts (the relationship summary that precedes any recommendation). Three patterns recur: the head-count classification, the dollar-cap-per-person rule for gifts, and the restricted-person screen.

Worked example: the head-count classification

A representative drafts a market commentary piece and intends to email it to 60 retail customers over the course of a single month. How is that communication classified, and what approval does it require before it goes out?

1. Correspondence, subject only to post-use review under the firm's supervisory procedures
2. An institutional communication, which requires no principal approval at any stage
3. Correspondence, but requiring principal approval before it is sent
4. A retail communication, requiring approval by a registered principal before first use

Answer: A retail communication, requiring approval by a registered principal before first use

What decides it is how many retail investors receive the piece inside the counting window, not that they are existing customers or that the medium is email. Choice A tempts because a note to your own customers feels like correspondence, and post-use review is how correspondence is supervised. Choice C keeps the correspondence label while adding an approval step that label never requires. Choice B fails on its face: retail customers are not an institutional audience.

Worked example: the restricted-person screen

A registered representative's spouse wants to buy shares in a common stock IPO through her own account. What does FINRA's new-issue rule say?

1. She is a restricted person by family relation — the purchase is barred
2. Spouses may always buy new issues
3. She may buy up to 100 shares
4. Only the SEC can approve her purchase

Answer: She is a restricted person by family relation — the purchase is barred

The new-issue rule bars industry insiders and their immediate family, spouses included, from buying an equity IPO at the offering price, and a separate account changes nothing. Choice B tempts because the spouse has no industry job of her own; the restriction follows the household. Choice C invents a small-share allowance the rule does not contain. Choice D tempts because a regulator sounds like the right gatekeeper, but no regulator grants exceptions to a member rule.

Numbers and rules the bank keeps testing

• A retail communication needs registered-principal approval before first use; correspondence is reviewed under supervisory procedures afterward.
• Gifts tied to the recipient's employer's business are capped per person per year; entertainment the representative attends is judged separately.
• Restricted persons include associated persons of any member firm, their immediate family, finders and fiduciaries to the deal, and portfolio managers buying personally.
• The relationship summary is delivered at or before the earliest of a recommendation, an account opening, or an order.
• A traditional private placement cannot be advertised; a newspaper ad kills the exemption even if every buyer is accredited.

Trap to avoid

Candidates read the new-issue rule as covering only employees of the firm running the deal. It reaches associated persons of every member firm and their households, and a retail customer whose account sits at a syndicate member is not restricted. When the stem asks who may buy at the offering price, pick the buyer with no industry connection at all.

Opening accounts after obtaining and evaluating the customer profile is the second job function: 11 scored questions, 9% of the exam. In our bank it draws from the Suitability and Customer Accounts category, specifically the account-opening and account-type items; the recommendation items from that category appear under the third function. Three patterns recur: identity versus profile, who holds authority (a corporate resolution, a written discretionary grant, a guardian, an executor), and what happens at death or majority, where the registration alone decides where assets go.

Worked example: identity versus profile

A representative is opening a new individual cash account. Which set of information must the firm obtain and verify in order to satisfy its customer identification program?

1. Name, date of birth, a residential or business street address, and a taxpayer identification number
2. Name, employer, annual income, and approximate net worth
3. Name, investment objective, risk tolerance, and time horizon
4. Name, outside bank account number, prior brokerage relationships, and estimated tax bracket

Answer: Name, date of birth, a residential or business street address, and a taxpayer identification number

Identification asks who the customer is, and the four items in the correct choice are the ones a firm can check against documents. Choice C tempts because every item on it must in fact be collected, but for suitability, not identity; a risk tolerance proves nothing about who is across the desk. Choice B mixes one identity item with financial facts that belong to the profile. Choice D pads a name with things no identification program calls for.

Worked example: what happens at death

One of two tenants-in-common dies holding 60% of their account. Where does that interest go?

1. To the deceased tenant's estate — not to the survivor
2. To the surviving tenant automatically
3. To the state as unclaimed property
4. It is split equally regardless of ownership shares

Answer: To the deceased tenant's estate — not to the survivor

Tenancy in common preserves separate, unequal shares, and each share passes through its owner's estate. Choice B tempts because automatic survivorship is the feature most candidates learn first, but it belongs to joint tenants with right of survivorship, not to tenants in common. Choice D tempts because joint sounds like equal, yet tenants in common exists precisely to hold unequal interests. Choice C confuses a death with abandoned property; an estate is not unclaimed.

Numbers and rules the bank keeps testing

• Discretion must be granted in writing before it is used, and it is bounded by the scope of the grant; a permissive remark on the phone is not authority.
• A corporate account needs a resolution naming who may trade, plus the charter or bylaws showing margin or options trading is permitted.
• A custodial account has one custodian and one minor, the gift is irrevocable, margin is barred, and control passes to the former minor at majority.
• Withdrawal checks from a joint account are payable to all holders, whichever one asked.
• On notice of death: cancel open orders, mark the account deceased, wait for the legal documents.
• A customer who refuses to give a profile may open the account for unsolicited orders but receives no recommendations.

Trap to avoid

The trusted contact person is the distinction candidates keep missing. Naming one lets the firm call that person about suspected exploitation or an unreachable customer, and lets the firm place a temporary hold on a suspicious disbursement while it investigates. It confers no power to trade, withdraw or inherit. A choice that hands the trusted contact authority is wrong; so is one that demands a court order before the firm may call.

Providing investment information, making recommendations, transferring assets and maintaining records is the third job function: 91 scored questions, 73% of the exam. It is the exam. Our bank spreads it across four categories; this section covers the largest, Equity and Debt Securities (39 questions in our bank), plus the primary-market items in New Issues (underwriting types, shelf registration, the green shoe, lock-ups). Four patterns recur: convention-matching, yield ordering, structure-picking (a stated worry points to one tranche, preferred class or bond), and phantom income.

Worked example: convention-matching

On the same day, a customer buys $50,000 face amount of a corporate debenture and $50,000 face amount of a Treasury note. The representative notes that accrued interest is computed differently on the two confirmations. Which statement is accurate?

1. Both accrue on an actual/actual calendar because both pay interest semiannually
2. The debenture accrues actual/actual and the Treasury note accrues 30/360
3. Both accrue on a 30/360 calendar; only municipal issues use actual days
4. The debenture accrues 30/360 and the Treasury note accrues actual/actual

Answer: The debenture accrues 30/360 and the Treasury note accrues actual/actual

The convention follows the issuer. Corporate and municipal bonds count 30-day months on a 360-day year; direct Treasury notes and bonds count actual elapsed days over the actual days in the coupon period. Choice B is the classic reversal: candidates recall that two conventions exist and assign them backward. Choice A tempts because both securities pay semiannually, but payment frequency has nothing to do with day count. Choice C reserves actual days for municipals, which accrue exactly like corporates.

Worked example: yield ordering

A customer buys a 6% corporate bond at a price of 108 that the issuer may call at par in three years. The customer asks which of the four yields shown on the confirmation will be the lowest number.

1. Nominal yield
2. Yield to call
3. Current yield
4. Yield to maturity

Answer: Yield to call

At a premium the holder pays more than she will get back, and that loss is spread over her holding period. Yield to maturity spreads it over the full life; yield to call spreads the same loss over the shorter period to the call date, so it is the smallest figure. Nominal yield is the coupon alone. Current yield accounts for price but not for losing the premium. Choice D tempts because premium bonds do yield less to maturity than the coupon, but a near call compresses the loss further.

Numbers and rules the bank keeps testing

• Discount bond: nominal, current, yield to maturity, yield to call, each higher than the last; a premium bond runs the ladder in reverse.
• Longer maturity and lower coupon mean bigger price swings; a zero-coupon bond has the longest duration for its maturity.
• Direct Treasury interest is federally taxable and state-exempt; agency pass-through interest is taxable at every level, and only Ginnie Mae carries the full faith and credit guarantee.
• TIPS principal accretion and zero-coupon accretion are reported as income in the year they accrue.
• Liquidation order: secured bonds, straight debentures with the general creditors, subordinated debentures, preferred, common.
• A firm commitment fixes the issuer's proceeds and leaves unsold shares with the syndicate; best efforts leaves demand risk with the issuer; standby backs a rights offering.

Trap to avoid

Ginnie Mae is the distinction this area misses most. Its certificates carry the government guarantee, and candidates transfer that guarantee onto tax treatment, concluding the interest must be state-exempt like a Treasury. It is pass-through mortgage interest, taxable at every level. When a stem asks for federally taxable but state-exempt income, the answer is a direct Treasury obligation, and every agency choice is the decoy.

Municipal Securities is the second category inside the third job function, with 23 questions in our bank. Four patterns recur: name the note by its repayment source, where a tax, revenue or bond anticipation note is identified by the cash that retires it; tax-backed versus self-supporting, where general obligation debt brings a referendum and a debt limit while revenue debt brings a feasibility study, a rate covenant, a flow of funds and an additional bonds test; basis arithmetic at redemption, where premium and discount get opposite treatment; and who does what, where the MSRB writes rules that FINRA, the SEC and the bank regulators enforce, and bond counsel opines on validity and tax status, never on credit.

Worked example: tax-backed versus self-supporting

A state agency's bonds carry a provision that if reserves run short, the legislature MAY appropriate funds — but is not required to. What backing is this?

1. A moral obligation — a non-binding legislative backstop
2. A full faith and credit pledge
3. Federal insurance
4. A double-barreled pledge

Answer: A moral obligation — a non-binding legislative backstop

The word MAY is the whole question. A legislature that is permitted but not required to appropriate funds gives the bondholder a reputational backstop and nothing enforceable, which is what moral obligation means. Choice B tempts because state involvement sounds like a taxing-power pledge, but full faith and credit is a binding obligation approved by voters. Choice D tempts because a double-barreled bond also has two sources, yet both of its sources are legally enforceable. Choice C has no federal role at all.

Worked example: basis arithmetic at redemption

A customer buys a municipal bond in the secondary market at a price of 92 and holds it until redemption at par. How is the eight-point difference treated when the bond matures?

1. As ordinary income, because market discount on a municipal bond is not exempt interest
2. As tax-exempt interest, because all income produced by a municipal bond is exempt
3. As long-term capital gain, taxed at the customer's applicable capital gains rate
4. As a return of capital that reduces the basis of the customer's other municipal holdings

Answer: As ordinary income, because market discount on a municipal bond is not exempt interest

The federal exemption covers interest the issuer pays. A discount created by secondary-market trading is not issuer interest, so its accretion is ordinary income at maturity or sale. Choice B is the trap every candidate feels, because municipal income is supposed to be tax free, and that instinct is exactly what the item tests. Choice C tempts because the gain looks like appreciation, but market discount is treated as interest, not capital gain. Choice D describes return of capital, irrelevant to a bond bought below par.

Numbers and rules the bank keeps testing

• A premium is amortized down to par, so no loss exists at maturity; original issue discount on a new municipal issue accretes as exempt interest, unlike market discount.
• Net revenue pledge: operation and maintenance first, then debt service, then reserves and surplus; a gross pledge pays bondholders first.
• Syndicate priority: presale, group net, designated, member. Serial maturities quote on a yield basis; term maturities quote as dollar prices.
• A disqualifying political contribution by a municipal finance professional bars the dealer, not just the individual, from negotiated business with that issuer for two years.
• Private activity bond interest can be an alternative minimum tax preference item; public-purpose general obligation interest is not.
• Disclosure is an official statement on the MSRB's EMMA system; there is no prospectus because municipal issues are exempt from registration.

Trap to avoid

Exemption from registration is not exemption from the antifraud provisions. A municipal issuer files no registration statement and prints no prospectus, yet every statement in the official statement and every secondary-market representation sits under the antifraud rules. Any choice that reasons from no prospectus to no disclosure duty, or from exempt security to exempt conduct, is wrong.

Options and Margin is the third category inside the third job function, and at 38 questions it is the second-largest category in our bank, which matches its reputation on the live exam. Four patterns recur: breakeven and maximum-gain arithmetic, where straddles add premiums, spreads net them, and a covered call stops at the strike; floor versus percentage, where the Regulation T percentage, the minimum equity floor and the maintenance percentage compete; adjustment and assignment mechanics; and what must be delivered when, meaning the disclosure document before approval and the signed agreement after it.

Worked example: breakeven arithmetic

Expecting a pending court ruling to move a stock violently without knowing which way, a customer buys 1 LMN 70 call at 4 and 1 LMN 70 put at 3. At expiration, at what underlying prices does the combined position begin to show a profit?

1. Above 74 only
2. Between 67 and 74
3. Above 77 or below 63
4. Above 73 or below 66

Answer: Above 77 or below 63

Only one leg can finish in the money, so that leg alone must earn back the cost of both: the call premium plus the put premium, which is how far the stock must travel beyond the strike in either direction. Choice D is the frequent error, adding the put premium on the upside and subtracting the call premium on the downside, pairing each leg with its own cost. Choice A forgets the put exists. Choice B is the range between the breakevens, where the position loses.

Worked example: floor versus percentage

A customer wants to short $1,500 of stock in a new margin account. Reg T at 50% would call for $750. What must she actually deposit?

1. $2,000 — the minimum equity floor for short accounts
2. $750 — half the short value
3. $1,500 — the full short value
4. Nothing until the position moves against her

Answer: $2,000 — the minimum equity floor for short accounts

The percentage requirement and the minimum equity floor compete, and the larger figure governs; because a short loss has no ceiling, the floor applies to short accounts whatever their size. Choice B tempts because the Regulation T arithmetic is correct, just not binding. Choice C tempts by demanding full value, which is what a cash account would require. Choice D describes a maintenance call, which arrives after the position moves, never in place of the opening deposit.

Numbers and rules the bank keeps testing

• Regulation T is 50% of a purchase or a short sale; SMA buys twice its amount of marginable stock, and SMA does not evaporate on a later decline.
• On a long position the debit never changes as the stock falls; shorts carry a higher maintenance percentage than longs.
• Treasuries sit outside Regulation T; listed options expiring within nine months have no loan value.
• Ordinary cash dividends do not adjust a listed option; an uneven split changes the strike and the deliverable within one contract.
• The Options Clearing Corporation issues, guarantees and assigns at random to a member firm, which allocates by random selection, first-in first-out, or any fair, disclosed method.
• Position limits aggregate the same side of the market: long calls with short puts, long puts with short calls.

Trap to avoid

Uncovered call versus uncovered put risk. An uncovered call writer faces unlimited loss because a share price has no ceiling; an uncovered put writer's worst case is the strike less the premium, because a stock stops at zero. Distractors borrow the formula from the other position. Before answering any writer-risk item, name which option was sold and which direction hurts.

The last slice of the third job function draws from two bank categories: Packaged Products, Annuities and Retirement Plans (26 questions in our bank) and the recommendation items within Suitability and Customer Accounts (29 questions in our bank, shared with the account-opening function). Four patterns recur: share class by horizon and size, compare to the assumed rate for variable annuity payouts, which wrapper for which employer, and the whole profile, not the one fact, where a yield that serves one objective cannot cure a liquidity mismatch and a casual remark cannot override a documented objective.

Worked example: compare to the assumed rate

A customer receives monthly income from a variable annuity carrying a 4% assumed interest rate. In the most recent month the separate account earned a net return of 3%. What happens to the customer's next monthly payment?

1. It increases, because the separate account produced a positive return
2. It decreases, because the return fell short of the assumed interest rate
3. It remains unchanged, because the return was positive rather than negative
4. It remains unchanged, because payments are fixed once annuitization has occurred

Answer: It decreases, because the return fell short of the assumed interest rate

A variable annuity check is repriced each period against the assumed interest rate, not against zero. When the separate account earns less than that assumption, the next payment falls even though the account made money. Choice A traps candidates who read the sign of the return instead of comparing it with the benchmark. Choice C repeats the same error in different words. Choice D confuses a variable payout with a fixed annuity, where payments do hold constant after annuitization.

Worked example: the whole profile, not the one fact

Two share classes of the same fund would both serve a retail customer's objective, but one costs meaningfully more over her expected holding period. Under Regulation Best Interest, what must the recommending representative weigh?

1. Costs — recommending the pricier class needs a reason grounded in her interest, not the firm's
2. Nothing; cost is the customer's problem to research
3. Only whether the fund itself is suitable
4. The firm's payout grid

Answer: Costs — recommending the pricier class needs a reason grounded in her interest, not the firm's

The care obligation adds cost and reasonably available alternatives to the analysis, so recommending the costlier class needs a reason rooted in the customer's interest. Choice C tempts because the fund is suitable, and suitability used to be the whole test. Choice A pushes cost outside the representative's duty, which the best-interest standard rejects. Choice D names the very conflict the rule subordinates: the payout grid is the firm's interest and can never justify a customer paying more.

Numbers and rules the bank keeps testing

• Forward pricing: purchases fill at the next net asset value plus the sales charge; redemptions at the next net asset value less any redemption charge.
• A letter of intent is non-binding and may be backdated to capture a recent purchase; steering a purchase just under a breakpoint without disclosing it is breakpoint selling.
• Long horizon and a large purchase favor Class A shares with breakpoints; a short horizon favors the level charge.
• At annuitization, accumulation units become a fixed number of annuity units whose value keeps fluctuating; straight life pays the largest check.
• Random withdrawals from a non-qualified annuity come out earnings first as ordinary income, with a penalty before the retirement age.
• A Roth owner has no lifetime required distributions; a direct trustee-to-trustee transfer avoids withholding; a fund-family exchange is a taxable sale.

Trap to avoid

One matching attribute against the whole profile. A distribution rate can genuinely serve a stated income need while the product's illiquidity defeats a stated near-term cash need; a remark about wanting higher returns cannot outrank a documented objective of preserving capital. When a choice justifies a recommendation by the one attribute that fits, it is the trap; the correct choice names the constraint the recommendation violated.

Obtaining and verifying customer instructions and processing transactions is the fourth job function: 14 scored questions, 11% of the exam. In our bank it draws from Trading, Settlement and Prohibited Activities (26 questions in our bank) and from the insider-trading and structuring items in New Issues, Regulations and Business Conduct. Four patterns recur: which side of the market the order sits on, elected, then what, count from settlement, and label the violation, distinguishing marking the close, trading ahead, churning and undisclosed riskless principal compensation.

Worked example: elected, then what

A sell stop at 38 rests on the book. The stock prints 38.00, then 37.90, then 38.10. At which print did the order become live, and what did it become?

1. The 38.00 print elected it, converting it into a market order to sell
2. The 37.90 print elected it as a limit order at 38
3. The 38.10 print elected it
4. Stops activate only at the close

Answer: The 38.00 print elected it, converting it into a market order to sell

A stop is elected by the first print at or through its price, and the first such print is 38.00 itself. Election converts it into a market order that fills at the next available price, favorable or not. Choice B tempts because the lower print feels like the trigger and because candidates confuse a stop with a stop-limit, which would become a limit order. Choice C waits for a print above the stop, which is backward for a sell stop. Choice D describes no order type at all.

Worked example: count from settlement

A stock's record date for a dividend is Thursday. With regular-way settlement at T+1, what is the last day to BUY and still receive the dividend?

1. Wednesday — a Wednesday trade settles Thursday, making the buyer a holder of record
2. Thursday — buying on the record date always qualifies
3. Monday — three days ahead is required
4. Friday — the day after record

Answer: Wednesday — a Wednesday trade settles Thursday, making the buyer a holder of record

Ownership for dividend purposes is fixed by settlement, not by trade date. A purchase on Wednesday settles on Thursday, the record date, so the buyer is a holder of record. Choice B tempts because the record date sounds like the deadline, but a Thursday trade settles Friday, one day too late. Choice C carries over the older, longer settlement cycle. Choice D is the day after record, when the shares already trade without the dividend attached.

Numbers and rules the bank keeps testing

• A sell stop rests below the market to protect a long; a buy stop rests above it to protect a short; a limit placed on that same side fills at once.
• Open buy limits and sell stops are reduced by the dividend on the ex-date unless marked do-not-reduce.
• Immediate-or-cancel takes partial fills and cancels the rest; fill-or-kill wants everything now or nothing; all-or-none wants everything but will wait.
• Before a short sale the firm locates the stock and documents it; a long mark requires ownership and deliverability by settlement.
• Regular way for corporate securities is T+1; cash settlement, agreed at the time of the trade, settles the same day; an exercised equity option settles like any stock trade.
• Confirmations go out at or before completion and state agent or principal capacity; a riskless principal markup is disclosed like a commission.
• Tender only a net long position; a tipper who profits nothing still faces insider-trading liability.

Trap to avoid

A sell limit below the market is the most common order-type error. The customer wants to protect a gain if the stock reverses, and a sell limit at the lower price sounds protective; in fact a limit to sell executes at its limit or better, so it fills at once at the current higher price and liquidates the position she wanted to keep. The protective order is the sell stop, dormant until the stock trades down to the trigger.

The order below follows the weights: the third job function holds 91 of the 125 scored questions, so it owns most of the calendar, while the other three functions share a combined three days. Every session uses the Series 7 practice bank, filtered to the named category, followed by the cheat sheet for the rules you missed.

Week one: build the third function

• Monday and Tuesday: Equity and Debt Securities, half the category each day. Write the yield ladder and the accrual conventions from memory before Tuesday's set.
• Wednesday: Municipal Securities in one sitting. Afterward, list each note type with the cash that retires it and each revenue-bond protection with whom it protects.
• Thursday and Friday: Options and Margin, spread over two days because it is the arithmetic-heavy category. Work every breakeven by hand before reading the choices; Friday closes with the margin items only.
• Saturday: Packaged Products, Annuities and Retirement Plans, then the recommendation items from Suitability and Customer Accounts.
• Sunday: A mixed, timed set drawn from all third-function categories. Log every miss by pattern name, not by topic.

Week two: the other functions, then everything mixed

• Monday: Account opening, from Suitability and Customer Accounts. Registrations, authority documents, custodial and death rules.
• Tuesday: Seeking business, from New Issues, Regulations and Business Conduct: communications, gifts, restricted persons, private placements.
• Wednesday: Processing transactions, all of Trading, Settlement and Prohibited Activities. Draw the four order types on a price line before you start.
• Thursday: Return to the two third-function categories with the most logged misses. Reread the explanations before retrying.
• Friday: A full-length mixed set under the 225-minute clock, no pauses. Score it against 72 and note where the clock ran short.
• Saturday: Cheat sheet only. Rebuild the outline weights and the numbers table on paper, then reread the if-then rules aloud.
• Sunday: Rest. A short evening review of your miss log, nothing new.