What are the permitted activities of a General Securities Representative (Series 7)?

In this article, Solomon Exam Prep explains what a General Securities Representative can and cannot do and how this compares to other rep-level registrations. Continue reading

Of the representative-level FINRA registrations categories, the General Securities Representative (Series 7) registration is considered by many to be the most valuable, due to the range of products it allows you to sell. But how “general” is it? Are there other representative-level registrations that permit you do things a Series 7 representative cannot?

What is a Series 7 representative permitted to do?

FINRA allows a General Securities Representative to solicit the purchase and sales of all securities products, including:

  • Stocks, whether from IPOs, private placements, or secondary market trading
  • Other corporate securities, such as bonds, rights, and warrants
  • Mutual funds
  • Closed-end funds
  • Money market funds
  • Unit investment trusts (UITs)
  • Exchange-traded funds (ETFs)
  • Real estate investment trusts (REITs)
  • Variable contracts (insurance products whose funds are invested in securities)
  • Municipal securities
  • Municipal fund securities, such as 529 plans
  • Options
  • Government securities
  • Direct participation programs (DPPs)
  • Venture capital
  • Hedge funds

This long list of products means that a Series 7 registered rep may perform the functions of an Investment Company and Variable Contracts Representative (Series 6), Direct Participation Programs Representative (Series 22), or Private Securities Offerings Representative (Series 82).

Besides sales, General Securities Representatives may also perform certain activities closely related to sales. They may:

  • recommend investments after performing a suitability analysis for the customer
  • accept unsolicited orders
  • open customer accounts, subject to approval by a principal

What is a Series 7 representative not permitted to do?

Though a General Securities Representative may solicit purchases of IPO shares, he may not work on underwriting or structuring an IPO, or any other securities offerings. This means that he is not permitted to advise an issuer on an offering. This work requires registration as an Investment Banking Representative (Series 79).  Likewise, working on municipal underwriting requires registration as a Municipal Securities Representative (Series 52).

A Series 7 representative is also not qualified to perform the back-office functions of an Operations Professional (Series 99). Among these functions are maintaining possession or control of the firm’s securities, calculating margin for margin accounts, and sending trade confirmations and account statements.

Of course, every registered representative must also pass the FINRA Securities Industry Essentials (SIE) exam. The SIE doesn’t qualify you to do anything, instead it is a foundational exam that focuses on industry terminology, securities products, the structure and function of the markets, regulatory agencies and their functions, and regulated and prohibited practices. Unlike other FINRA securities exams, you do not need to be employed or sponsored by a broker-dealer in order to take the SIE. The only requirement is that you be 18 years old.

If you are considering taking the Series 7 exam, Solomon Exam Prep is here to help you. Solomon provides an extensive array of study material, together with resources such as study schedules, the Ask The Professor function, and important exam information. You can view our Series 7 offerings here.

 

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Solomon Study Question of the Month for April

This month’s study question from the Solomon Exam Prep Online Exam Simulator question database is now available. Continue reading

Study Question

This month’s study question from the Solomon Online Exam Simulator question database is now available.

*** Comment below or submit your answer to info@solomonexamprep.com to be entered to win a $20 Starbucks gift card.***

This question is relevant to the SIE and the Series 7, 14, 50, 52, and 54.

Question: A Municipal Finance Professional (MFP) hosted a $500 plate fundraiser for a governmental issuer. Does this event trigger a ban on business for two years?

A. Yes, it will trigger a ban because an MFP may not host a fundraiser.

B. Yes, it will trigger a ban because the cost per plate is above the de minimis amount.

C. No, it will not trigger a ban because the MFP did not contribute money, only time and space.

D. No, it will not trigger a ban because the MFP was holding the fundraiser, not the municipal dealer.

Correct Answer: A

Explanation: MFPs are not permitted to solicit funds for municipal issuers or their officials without triggering a two-year ban on business for their firm. Thus, holding fundraisers is not allowed. Municipal dealers are also forbidden from holding fundraisers.


To explore free samples of Solomon Exam Prep’s industry-leading online exam simulators for the SIE, Series 7, Series 14, Series 50, Series 52, Series 54, and other FINRA, MSRB, NASAA, and NFA exams, visit the Solomon website here.

Best Execution: It’s Not Just for Capital Punishment!

MSRB Rule G-18, effective March 21, 2016, establishes a best-execution rule for municipal security transactions. The rule requires brokers and dealers to make reasonable efforts to find as favorable a price as possible for a customer’s transaction, given the prevailing conditions of the market. G-18 is comparable to FINRA Rule 5310, though it is designed specifically to meet the needs of the municipal securities market. —This post is relevant to the Series 52 and Series 53.— Continue reading

Rule G-18
MSRB Rule G-18, effective March 21, 2016, establishes a best-execution rule for municipal security transactions.  The rule requires brokers and dealers to make reasonable efforts to find as favorable a price as possible for a customer’s transaction, given the prevailing conditions of the market. G-18 is comparable to FINRA Rule 5310, though it is designed specifically to meet the needs of the municipal securities market.

In deciding how and where to execute a trade, a broker-dealer is expected to consider these factors:

• The character of the market for the security, such as its price, volatility, and liquidity
• The size and the type of transaction
• The number of markets checked
• The information reviewed to determine the current market for the security or similar securities
• The accessibility of the quotation
• The terms and conditions of the transaction as communicated to the broker-dealer

Because municipal securities trade over-the-counter, the term “market” should be interpreted broadly to include trading among broker’s brokers, alternative trading systems, or other counter-parties. Dealers must be especially vigilant with transactions in markets where trading is thin and limited pricing information is available.

If a dealer does not get the best price possible in the market, this does not necessarily mean that reasonable diligence was not used.  However, if the dealer makes another trade soon after and gets a better price for a similar security and there has been no significant change in the market, this is an indicator that the dealer did not use reasonable diligence.

The following are a few examples of characteristics that may be used to determine if two securities are similar:

• Issuer
• Source of repayment
• Credit rating
• Coupon
• Maturity
• Redemption features
• Sector of the market
• Geographical region
• Tax status

Broker-dealers must institute written policies and procedures that address how they will make a best-execution determination in the absence of pricing information or multiple quotations. They must document compliance with those policies and conduct reviews at least once a year to assess their effectiveness.

Broker-dealers are exempt from the best execution requirement when acting on behalf of a sophisticated municipal market professional (SMMP).  An SMMP is:

• A bank, savings and loan association, insurance company, or investment company
• A registered investment adviser
• Any other individual or entity having total assets of at least $50 million

Note: Because broker-dealers are not considered to be customers, the best-execution standard does not have to be applied to trades between broker-dealers that are not on behalf of a customer.

This post is relevant to the Series 52 and Series 53.

Study Question of the Month – December

This month’s study question from the Solomon Online Exam Simulator question database is now available! Relevant to the Series 7, Series 27, and Series 52. –ANSWER POSTED– Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available!

***Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.***

Study Question

Question (Relevant to the Series 7, Series 27, and Series 52): John Johnson is interested in investing in municipal bonds, but wants to be sure he can convert his investment to cash quickly in case an unexpected expense comes up. Which of the following investments would allow John to return the investment to the issuer and receive money prior to maturity?

Answers:

A. Moral obligation bond

B. Revenue anticipation note

C. Zero-coupon bond

D. Variable-rate demand obligation

Correct Answer: D. Variable-rate demand obligation

Rationale: Variable-rate demand obligations (VRDOs) contain a put option, which gives investors the right to put the security back to the issuer at any time, at a price equal to the bond’s face value plus accrued interest. For example, assume that an investor has a VRDO with a face value of $1,000 and accrued interest of $30. The security will mature in a little under three months. Due to a pressing medical expense, the investor decides to return the VRDO to the issuer and receive the $1,030.

Congratulations Marty T., this month’s Study Question of the Month winner!

Study Question of the Month – October

This month’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, 52, 62, 65 and 66. –ANSWER POSTED– Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available.

***Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.***

Study Question

Question (Relevant to the Series 7, Series 52, Series 62Series 65 and Series 66):

The interest rate on a SLGS certificate or bond can never fall below:

Answers:

A. The Treasury rate

B. One basis point above the Treasury rate

C. One basis point below the Treasury rate

D. Zero

Correct Answer: D. Zero

Rationale: The SLGS interest rate is always one basis point below the Treasury security that has a comparable maturity, unless the Treasury rate itself equals zero, which is the floor below which the interest rate on a SLGS cannot go. In this case the Treasury rate and the SLGS rate will be equal.

 

All study questions are from Solomon’s industry-leading Online Exam Simulator.

Bank Loan Disclosures on EMMA

EMMA, the Electronic Municipal Market Access website, now allows issuers to voluntarily share bank loan disclosure information online. Continue reading

EMMA, the Electronic Municipal Market Access website, now allows issuers to voluntarily share bank loan disclosure information online.

EMMA was created by the MSRB to give investors online access to official statements for municipal bonds, as well as other disclosure documents.  By adding the ability for issuers to share bank loan disclosure information, the MSRB is helping to provide investors with more transparency and more information with which to approach the municipal market.

The information can be posted on the issuer’s customized homepage. Getting it displayed is a two-step process. First, the issuer must submit the bank loan disclosure via the EMMA Dataport Submission Portal.  Once the information is submitted, it can be published on the Customized Issuer Homepage by using the Issuer Dashboard.

Investors will find bank loan disclosures and other documentation under the Continuing Disclosure tab on the issuer’s customized homepage.

EMMA is covered on the Series 7, 50, 51, 52, and 53 exams.  For more information about EMMA and the services it provides, please visit: http://emma.msrb.org/aboutemma/overview.aspx

Exam Alert: SEC Issues Bulletin Regarding Diminished Financial Capacity

On June 1, 2015, the SEC issued an investor bulletin about “diminished financial capacity”, which refers to when an individual becomes unable to manage their finances. They recommend a number of steps for individuals to take to prepare for such a condition. Continue reading

Exam AlertOn June 1, 2015, the SEC issued an investor bulletin about “diminished financial capacity”, which refers to when an individual becomes unable to manage their finances. They recommend a number of steps for individuals to take to prepare for such a condition. These steps include:

  • Organize important documents and keep them safe and accessible
  • Give your financial professionals emergency contacts
  • Keep your information and contacts updated
  • Report financial fraud and abuse

Some other options to consider include:

  • Authorizing a durable power of attorney
  • Getting someone you trust involved

Source: Investor Bulletin and Consumer Advisory: Planning for Diminished Capacity and Illness

This alert applies to the Series 6, Series 7, Series 52, Series 65, and Series 66.

Study Question of the Month – February

This month’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, 52, and 65. –ANSWER POSTED– Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available.

***Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.***

 Study Question

Question (Relevant to the Series 7Series 52, and Series 65) 

Jenny lives in Minnesota. She is comparing a Washington state municipal bond that pays 5% to similar corporate bonds. She has a federal tax rate of 20% and a State rate of 4%. What yield will the corporate bond have to pay to be equivalent to the municipal bond?

Answers:

A. 4%

B. 5%

C. 6.25%

D. 6.58%

Correct Answer: C. 6.25%

Rationale: Because Jenny lives in Minnesota, the interest on her municipal bond will be tax-exempt at the federal level, but not at the state level. To calculate the tax-equivalent yield of a municipal bond, simply take the rate of the municipal bond and divide it by 1 minus the tax rate. So the tax equivalent yield = .05/(1-.20) = .0625 or 6.25%.

Congratulations! This month’s winner is Ruth K.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Month – January

This month’s study question from the Solomon Online Exam Simulator question database is now available. Submit your answer for a chance to win a $10 Starbucks gift card! Relevant to the Series 7, 24, 26, 27, 51, 52, 53, 62, 79, 82, 99. –ANSWER POSTED– Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available.

***Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.***

 Study Question

Question (Relevant to the Series 7Series 24, Series 26, Series 27, Series 51, Series 52, Series 53Series 62Series 79, Series 82, Series 99) 

Jon and Jenny are married. They each have an individual account and they have a joint account owned by both of them. What is the combined maximum SIPC coverage for all their accounts?

Answers:

A. $500,000

B. $1,000,000

C. $1,500,000

D. $750,000

Correct Answer: C. $1,500,000

Rationale: SIPC covers a maximum of $500,000 per “separate customer” at a broker-dealer or clearing firm including up to $250,000 in cash.Total coverage can be higher for multiple accounts if the accounts are considered to be held by separate customers. There are five categories of separate customers defined by SIPC. These categories include 1) individual accounts, 2) joint accounts, 3) accounts held by executors, administrators, and guardians/custodians/conservators (such as UGMA accounts), 4) accounts held by corporations, partnerships, or unincorporated associations, and 5) trust accounts. Thus, two individual accounts held by two different people, and one joint account would be considered three separate customers by the SIPC, and therefore subject to a maximum of $1,500,000 of coverage.

Congratulations! This month’s winner is Abe B.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

MSRB Rule Changes: Series 51, 52, and 53

The MSRB has added two new rules effective July 9, 2014. They are Rule G-47 (Time of Trade Disclosure) and Rule G-48 (Transactions with Sophisticated Municipal Market Professionals). MSRB has also amended Rule G-3 (Classification of Principals and Representatives) and Rule G-19 (Suitability), effective September 30, 2014. These four changes coordinate MSRB rules with FINRA rules and remove regulatory redundancies. Continue reading

The MSRB has added two new rules effective July 9, 2014. They are Rule G-47 (Time of Trade Disclosure) and Rule G-48 (Transactions with Sophisticated Municipal Market Professionals). MSRB has also amended Rule G-3 (Classification of Principals and Representatives) and Rule G-19 (Suitability), effective September 30, 2014. These four changes coordinate MSRB rules with FINRA rules and remove regulatory redundancies.

MSRB Rule G-3.  MSRB narrows the definition of Limited Representative – Investment Company and Variable Contracts Products (Series 6). Under FINRA rules, a Series 6 license only allows individuals to be involved in the purchase and sale of funds and variable products. The new MSRB rule will now be consistent with the FINRA rules. Representatives who want to participate in broader activities, such as underwriting, research and investment advice must now take and pass the Municipal Securities Representative Qualification Examination (Series 52).

Amended Rule G-3 also eliminates the designation of Municipal Securities Financial and Operations Principal (FINOP). Since municipal securities dealers that require a FINOP are also FINRA members and since FINRA has similar FINOP requirements, Rule G-3 eliminates the redundancy by removing its separate FINOP designation.

MSRB Rule G-19.  MSRB’s amended suitability rule conforms to FINRA’s own recent changes to its rule. Specifically, the amended rule recognizes three components to a broker-dealer’s suitability obligations. First, a broker-dealer must understand the complexity and risks of a security or investment strategy and consciously decide its suitability for at least some investors. Second, it must reasonably believe that a recommendation is suitable for a particular customer based on the customer’s personal and investment profile. Third, when a broker-dealer has control over a customer account, it must reasonably believe that a series of recommended securities transactions are not excessive.

MSRB Rule G-47.  This new rule requires broker-dealers to disclose to its customers all material information about a transaction and the security at or prior to the time of trade. Information is considered “material” if a reasonable investor is likely to consider it important in making an investment decision. Disclosures must include a complete description of the security and any facts important to assessing the potential risks of the investment.

MSRB Rule G-48.  Rule G-48 exempts broker-dealers from any obligation to disclose material information to customers who are sophisticated municipal market professionals (SMMPSs). It also exempts broker-dealers from informing an SMMP that the price of a secondary market agency transaction is fair and reasonable, as long as the broker-dealer has not recommended the transaction or exercised discretion as to its execution. Finally, Rule G-48 exempts broker-dealers from the obligation to perform a customer-specific suitability analysis for an SMMP.