How to Pass the FINRA Series 79 Exam

What can you do with a Series 79 license? What is the exam like and how should you prepare for it? Solomon answers your top Series 79 questions. Continue reading

What does the Series 79 exam permit me to do?

The Series 79, also known as the Limited Representative Investment Banking Exam, was developed by the Financial Industry Regulatory Authority (FINRA) to assess the skills and competency of entry-level investment bankers. If you work for a FINRA member firm as an investment banker, you must pass the Series 79 exam and register as an Investment Banking Representative. Although the Series 79 is designed for junior-level bankers, it proves to be one of the most difficult exams offered by FINRA, particularly for test-takers who do not have education and work experience in accounting and finance. In addition, the Series 79 exam requires a broad knowledge of the rules, regulations and industry practices that govern US capital markets and investment banking.

Passing the Series 79 exam qualifies you to advise on and/or facilitate the following:  

    • Debt and equity offerings (private placement or public offering)
    • Mergers and acquisitions
    • Tender offers
    • Financial restructurings
    • Asset sales
    • Divestitures or other corporate reorganizations
    • Business combination transactions
Do I need to take any other securities licensing exams?

According to FINRA, the Series 79 does NOT cover sales or marketing of debt or equity securities to investors or potential investors. In order to make investor presentations, an investment banker with the Series 79 registration would also need to be “registered as a General Securities Representative (Series 7), Corporate Securities Representative (Series 62), or Private Securities Offerings Representative (Series 82) depending on the type of offering being made.”

You are also required to take the FINRA Securities Industry Essentials (SIE) exam, unless you have passed certain other licensing exams (such as the Series 7 or Series 82) before October 1st, 2018.

Additionally, in order to comply with state securities regulations, most individuals with the Series 79 registration pass the NASAA Series 63 exam as well. Check with your firm’s compliance officer to determine if this registration applies to you.

About the Exam

The Series 79 exam consists of 75 scored and 10 un-scored multiple-choice questions covering the three main sections of the FINRA Series 79 content outline. The exam itself is not divided into three sections, so questions from each section appear randomly throughout the exam. The 10 additional un-scored questions are ones that the exam committee is trying out. These are unidentified and are distributed randomly throughout the exam.

Note: Scores are rounded down to the next lowest whole number (e.g. 72.9% would be a final score of 72% – not a passing score for the Series 79 exam).

Topics Covered on the Exam

The questions on the Series 79 exam cover the major job functions of entry-level investment bankers, as determined by FINRA:

FINRA updates its exam questions regularly to reflect the most current rules and regulations. Solomon recommends that you print out the current version of the FINRA Series 79 Content Outline and use it in conjunction with the Solomon Series 79 Study Guide. The Content Outline is subject to change without notice, so make sure you have the most recent version.

FINRA and SEC Rule Numbers: What Should You Remember?

The Solomon Exam Prep Series 79 Study Guide introduces you to several different rules instituted by both FINRA and the SEC. While learning about these rules is important, the exam will not ask for specific FINRA rules, so you do not need to memorize those rule numbers. Instead, you should learn and understand the content of those rules. FINRA rules are generally distinguished by having four numbers (i.e., Rule 1250 or Rule 2241).

On the other hand, it is essential that you remember the content, and sometimes the names, of the SEC rules and regulations covered in the Solomon Series 79 Study Guide. In general, SEC rule numbers consist of either (1) three numbers (e.g., Rule 144) or (2) two numbers and a letter, followed by another number or a dash (e.g., Rule 10b-9, or Rule 15c1-3). Also, remember the names of regulations with letters associated with them, such as Regulation A.

Math and Accounting on the Series 79 Exam

Questions on the Series 79 exam do require you to use arithmetic, ratios, and basic algebra. Also, because the Series 79 exam requires you to understand and be able to analyze financial statements, a basic understanding of financial accounting is very helpful.

Question Types on the Exam

The Series 79 exam consists of multiple-choice questions, each with four options. You will see these question structures:

Closed Stem Format:

This item type asks a question and gives four possible answers from which to choose.

Which type of SEC filing would you look at to determine the holdings of a large investment manager?

    1. Form 13F
    2. Schedule 14A
    3. Form 4
    4. Form 8-K
Incomplete Sentence Format:

This kind of question has an incomplete sentence followed by four options that present possible conclusions.

If a company were to liquidate all its assets and pay off all its liabilities, the amount that would be left is:

    1. Shareholders’ equity
    2. Retained earnings
    3. Paid-in capital
    4. Long-term debt
“EXCEPT” Format:

This type requires you to recognize the one choice that is an exception among the four answer choices presented.

All of the following are characteristics of a hedge fund, except:

    1. They often do not need to register with the SEC.
    2. They are a highly liquid form of investment.
    3. They are generally lightly regulated when compared to other types of investments.
    4. Their members or investors are institutions or wealthy individual investors.
Complex Multiple-Choice (“Roman Numeral”) Format:

For this question type, you see a question followed by two or more statements identified by Roman numerals. The four answer choices represent combinations of these statements. You must select the combination that best answers the question.

You are analyzing a public company and your analysis requires you to compile LTM (last 12 months) financial data for the company. Which of the following SEC filings would you typically look to for such data?

    1. Form 10-K
    2. Schedule 13D
    3. Form 10-Q
    4. Form 3
    1. I and II
    2. II and III
    3. III and IV
    4. I and III

This format is also used in items that ask you to rank or order a set of items from highest to lowest (or vice versa), or to place a series of events in the proper sequence.

In marketing a proposed acquisition, a sell-side investment banker typically provides the following materials to prospective buyers in which order?

    1. Confidentiality agreement
    2. Teaser
    3. Bidding procedures letter
    4. Confidential information memorandum
    1. I, II, IV, III
    2. III, II, I, IV
    3. II, III, I, IV
    4. II, I, IV, III

Answers: A, A, B, D, D

For an even better idea of the possible question types you might encounter on the Series 79 exam, try Solomon Exam Prep’s free Series 79 Sample Quiz.

Test-Taking Tips for the Series 79 Exam

If taking the test at a test center, you will be given a dry erase pen and whiteboard or a pencil and scratch paper, a basic electronic calculator, and an Exhibits Book. The Exhibits Book may be presented on your computer or as a physical pamphlet. You cannot bring notes, paper, or your own calculator. Phones and watches are not permitted either. Many of the questions will refer to tables or charts in the Exhibits Book, and some questions will require you to perform calculations.

The exam is administered electronically, but the computer format can be tricky. Before the exam, you will be able to take a tutorial on how the electronic system works. You should take the tutorial, since some people find the system awkward to use at first, and you don’t want to use valuable test time dealing with technical issues. There is no scheduled break during the test; you’re allowed to take an unscheduled break, but the clock doesn’t stop.

Due to COVID-19, the Series 79 exam can also be taken online. Candidates must submit an Online Exam Administration Request Form to FINRA. Be sure to review the online system requirements for online testing before submitting the form.

Pacing

The Series 79 exam has 85 questions to answer in 150 minutes, which is a little under two minutes per question. This means you’ll need to work at an average pace of about 105 seconds per question. Keep in mind that 105 seconds per question is an average speed that you must maintain over two and a half hours. This would be challenging even if every question was short and straightforward. Unfortunately, a number of questions are detailed and time-consuming, and will certainly take more than 105 seconds. You’ll need to work faster on the remaining questions to maintain the necessary pace.

Read and Understand the Question Before You Answer 

Questions on the Series 79 exam can be intentionally confusing. You should carefully read each question before you answer it and understand exactly what the question is asking. While it is important to make a serious effort on each question, avoid spending a large amount of time on any single question. In general, you should dedicate no more than five minutes to any one question. If you find yourself spending more than five minutes, give it your best guess, flag the question, and move on.

Getting to the Point of the Question

As many of the questions on the Series 79 exam are paragraph length, it is often a good idea to read the last line or two of the question before reading the whole question. This technique will allow you to focus on the aspects of the long-form question that are most relevant, thereby saving you time.

Predict an Answer Choice if Possible

Many test-takers quickly read the question and immediately skip to the answer choices. A better technique is to formulate what you believe is the correct answer before going through the answer choices. If your pre-phrased answer is one of the choices, you should be comfortable in selecting that answer. This technique will also help you increase your speed.

Read Every Answer Choice

You should always read every answer choice. The exam is full of attractive but incorrect answers. Also, if you notice several correct answers, you may have missed an “except” or “not” in the question. If you consider every answer choice before making your selection, you are less likely to be tricked into picking a wrong but superficially appealing answer.

Answer Every Question, and Don’t Dawdle

There is no penalty for guessing. If you honestly don’t know an answer, pick an answer choice and move on. Don’t dawdle. Even a random guess has a 25% chance of being right. If you spend too long trying to narrow down answer choices on one question, you’ve lost precious time on later questions.

Mark for Review and Return Later

If you’re struggling with a question or have no idea what the answer is, mark the question and return to answer it later. Not only does this strategy allow you to efficiently answer the ones you know, but it can also help because you may learn something later in the exam that may help you answer an earlier question. Just remember to save enough time to return to the questions you didn’t answer. However, it is not a good idea to simply skip all of the difficult questions with the intention of answering them later. You should make a serious effort to answer each question before moving on to the next one, as your thoughts are often clearer early on in the exam-taking process than they will be later.

How to Study for the Series 79 Exam

Follow Solomon Exam Prep’s proven study system:
    • Read and understand. Read the Solomon Study Guide, carefully. The Series 79 is a knowledge test, not an IQ test. Many students read the Study Guide two or three times before taking the exam. To increase your ability to focus while reading, or as an alternative to reading, listen to the Solomon Series 79 Audiobook, which is a word-for-word reading of the Study Guide.
    • Answer practice questions in the Solomon Exam Simulator. When you’re done with a chapter in the Study Guide, take 4–6 chapter quizzes in the Solomon Series 79 Online Exam Simulator. Use these quizzes to give yourself practice and to find out what you need to study more. Make sure you read and understand the question rationales. When you’re finished reading the entire Study Guide, review your handwritten notes once more. Then, and only then, start taking full practice exams in the Exam Simulator. Aim to pass at least six full practice exams and try to get your Solomon Pass Probability™ score to at least an 80%; when you reach that point, you are probably ready to sit for the Series 79 exam.
Use these effective study strategies:
    • Take handwritten notes. As you read the Study Guide, take handwritten notes and review your notes every day for 10 to 15 minutes. Studies show that the act of taking handwritten notes in your own words and then reviewing them strengthens learning and memory.
    • Make flashcards. Making your own flashcards is another powerful and proven method to reinforce memory and strengthen learning. Solomon also offers digital flashcards for the Series 79 exam.
    • Research. Research anything you do not understand. Curiosity = learning. Students who take responsibility for their own learning by researching anything they do not understand get a deeper understanding of the subject matter and are much more likely to pass.
    • Become the teacher. Studies show that explaining what you are learning greatly increases your understanding of the material. Ask someone in your life to listen and ask questions. If you don’t have anyone, explain it to yourself. Studies show that helps almost as much as explaining to an actual person (see Solomon’s previous blog post to learn more about this strategy!).
Take advantage of Solomon’s supplemental tools and resources:
    • Use all the resources. The Resources folder in your Solomon student account has helpful information, including a detailed study schedule that you can print out – or use the online study schedule and check off tasks as you complete them.
    • Watch the Video Lecture. This provides a helpful review of the key concepts in each chapter after reading the Solomon Study Guide. Take notes to help yourself stay focused.
  • Good practices while studying:
    • Take regular breaks. Studies show that if you are studying for an exam, taking regular walks in a park or natural setting significantly improves scores. Walks in urban areas or among people did not improve test scores.
    • Get enough sleep during the period when you are studying. Sleep consolidates learning into memory, studies show. Be good to yourself while you are studying for the Series 79: exercise, eat well, and avoid activities that will hurt your ability to get a good night’s sleep.

You can pass the FINRA Series 79 Exam! It just takes focus and determination. Solomon Exam Prep is here to support you on your path to becoming a registered investment banking representative.

To explore all Solomon Exam Prep’s Series 79 study materials, including product samples, visit the Solomon website here.

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What Does “Tender” Mean on Securities Exams?

For a number of securities exams, you should understand the term “tender.” Solomon explains what the term means and how it’s used in the securities industry. Continue reading

When studying for a securities exam such as the FINRA Securities Industry Essentials (SIE) exam and the Series 7, Series 14, Series 24, Series 79, or the MSRB Series 50, Series 52, Series 53, or Series 54, it’s likely you will encounter the word “tender.” This bit of terminology may be confusing at first. But learning the ways “tender” is commonly used in the securities industry will prevent you from getting tripped up when you see it on an exam.

You may have heard this word in connection with stock buybacks. When a company offers to buy its shares back from stockholders, the company is said to be conducting a tender offer. The stockholders who take the company up on the offer are said to be tendering their shares. A company may also make a tender offer to a different company’s shareholders, for example if it wants to acquire the other company. 
  
The word “tender” comes from the field of law. To tender is to make a binding offer to enter into an agreement. (It also has a second meaning of presenting payment, which is why your dollar bill has the phrase “legal tender” on it.) So when you tender a security you own, you are offering to sell it on terms that have been spelled out between you and the other party. In the case of a tender offer, the company must specify these terms when it makes the offer and shareholders must take them or leave them. In many cases, the U.S. Securities and Exchange Commission (SEC) requires that these terms include a window of time during which shareholders who tendered their shares may change their minds. In that case, the “binding offer” is not binding right away. 
  
Another securities-related use of “tender” is when a security gives its owner the right to sell it back to the issuer. Exercising this right is sometimes called tendering the security. For example, a municipal bond might have a tender option that gives the bondholder the right to sell it back to the municipality at a certain time for a certain price. Additionally, some variable-rate municipal securities come with a mandatory tender that is triggered when the rate is adjusted. When this happens, the bondholder must choose between tendering the bond or accepting the new rate. 
  
So if you see the word “tender” on a securities exam, it means that the owner of a security is offering to sell it under specific terms and conditions, and the owner’s ability to back out of the offer may be limited.

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Interview: How Alec Orudjev Passed Four Securities Licensing Exams

What does it take to pass securities licensing exams like the SIE, Series 24, Series 63, and Series 79? Read about one student’s approach to success. Continue reading

No one said career changes are easy, and when they involve taking several difficult securities licensing exams, the challenge is real. Having an effective study system is an important part of passing securities licensing exams, and hearing about others’ strategies can help you develop a system that works for you. Solomon Exam Prep recently interviewed Alec Orudjev, General Counsel at FT Global Capital, about passing the SIE, Series 24, Series 63, and Series 79 exams (in three months!). Alec shares valuable insights into his study process and how he utilizes Solomon materials to achieve success.

“… the Solomon study materials are the best and the most comprehensive (notes, resources, simulated exam questions, etc.) in their class, in my view.

Photo of Alec Orudjev

Alec Orudjev

Solomon Exam Prep: What motivated you to pursue multiple securities licenses?

Alec Orudjev: After about two decades of being an attorney in private practice, I decided to change my career path and accepted an in-house legal counsel position earlier in the year. As a condition of such change, I needed to secure certain FINRA licenses.

Solomon Exam Prep: Why did you take your exams in the order that you did? Was this order helpful, or would you change anything if you had to do it again? 

Alec Orudjev: I have passed the SIE, Series 79, 63 and 24 tests, and am currently studying for the Series 7 exam. While some of this sequence is dictated by FINRA rules, etc., a great deal of it is a matter of personal planning. Given the overlapping nature of the substance of these tests, I thought it would be helpful to plan the sequence to benefit from common points/concepts across different tested areas. Basically, I focused on the end objective and reviewed the substance of each test to line them up so as to utilize my time most efficiently and effectively.

Solomon Exam Prep: Out of the exams you passed, which one required the most study time and why? 

Alec Orudjev: Looking back, I think the Series 24 exam commanded most of my study time and attention. I think the volume of what was to be covered and the overall fatigue of having to study and pass three FINRA exams in a 2 ½ month period both made this test preparation more difficult than it would or should have been. It is a very saturated, broad themed exam that requires a lot of focus and attention.

Solomon Exam Prep: How did you approach studying for your exams?  

Alec Orudjev: My approach included: (i) outlining, and (ii) attending Solomon live classes and utilizing exam simulators. With respect to the first element, I approached all my exam preparations the way I did my law school exams – by first preparing thorough outlines of the reading materials. I would start by reading the Solomon preparation materials, actively engaging them and highlighting key points, concepts and examples. Next, I would transfer (literally and figuratively) those notes into an outline of my own, condensing the reading materials down to their bare essence. For example, five chapters of the Series 24 prep book (about 500 pages) were condensed to a 50-page outline (10:1 ratio or so) which, then, I used in reviewing in preparation for the test. Needless to say, one’s outline is as good as one’s effort and the quality of the underlying study materials. On the latter point – the Solomon study materials are the best and the most comprehensive (notes, resources, simulated exam questions, etc.) in their class, in my view. While this outlining approach seems like a lot of work, it is. However, it has worked for me for years and I do strongly recommend this approach to all.

With respect to the second element of my approach, I made every effort to attend live classes and utilize exam simulator questions. I will then turn to Solomon’s online exam question bank and answer those questions, noting what I got right and, more importantly, what and why I got wrong. Also, a significant part of my preparations involved participation in live classes offered by Solomon (I enrolled in the SIE and 63 sessions). You tend to get lot more out of these sessions if you review the materials ahead of time. Overall, they are terrific – the instructor is sharp and very knowledgeable, with a healthy sense of humor to get you through some rather dense and tedious parts of the material. I would highly recommend taking live sessions as they force you to focus on the totality of the study materials in five days, 3-4 hours a day – a daunting, but useful exercise.

Studying for any difficult test is no pleasant experience … take breaks, change the nature of your mental engagement (read something else altogether, watch, take a walk, etc.) to refresh and resume your studying effort.”

Solomon Exam Prep: How did you take the exams – at a testing center or remotely? How was your experience, and do you have any tips to share? 

Alec Orudjev: I took all exams (4 + 1 more to go) at the ProMetric testing center in Bethesda, MD. Given the stress of test-taking, in general, I did not want to add the stress of doing it remotely, etc. The conditions at the center were superb, the staff – very friendly and helpful. I offer no new advice on how to handle this experience other than what is commonly suggested for test takers, e.g., arrive early, read test center instructions carefully and follow them to the letter, give yourself enough time to travel, relax and focus before the test, pace yourself during the test, etc. Keep in mind, however, that FINRA tests are uniquely stringent in the way they are administered, etc. So, to reiterate – read the test taking instructions closely.  

Solomon Exam Prep: Any words of wisdom to help motivate others who are preparing for exams? 

Alec Orudjev: Focus on the reasons why you have undertaken this effort. Studying for any difficult test is no pleasant experience, and very few things can make that less so. However, take breaks, change the nature of your mental engagement (read something else altogether, watch, take a walk, etc.) to refresh and resume your studying effort. There will be many distractions and excuses – acknowledge and indulge to some extent, but do not lose your focus. Most importantly, be honest with yourself about how disciplined you are studying and preparing for your exams.

Solomon Exam Prep: How has passing the SIE, Series 24, Series 63, and Series 79 exams affected your work and your career?

Alec Orudjev: Certainly. Apart from the obvious, studying helped me to be a better legal professional and advisor. Understanding and internalizing a large, complex body of laws, rules and regulations governing the conduct of member firms is a daunting task indeed. These exams set a useful baseline for developing this understanding and building upon it. Take solace in this idea and keep at it.

Visit the Solomon Exam Prep website to explore study materials for 21 different securities licensing exams, including the SIE, Series 7, Series 24Series 63, and Series 79.

Interview: How Fernando Russo passed four securities licensing exams

Preparing for the SIE, Series 63, Series 79, Series 82, or another securities licensing exam? Read about one Solomon Exam Prep student’s path to success. Continue reading

Passing a securities licensing exam is no small feat, but four? Solomon Exam Prep recently reached out to Fernando Russo, Vice President of Investment Banking at Young America Capital, to learn more about his success in passing the SIE, Series 82, Series 63, and Series 79 exams (in that order). Whether you need to pass one or multiple exams to reach your career goals, you’ll want to hear about Fernando’s process and helpful tips.

“The content is not rocket science and the math is very simple. It just takes time, dedication and good study materials.”

Fernando Russo

Solomon Exam Prep: Why did you take your exams in the order that you did? Was this order helpful, or would you change anything if you had to do it again? 

Fernando Russo: After the SIE I decided to take the 82 first because I wanted to be licensed as soon as possible. The materials for the 82 seemed simple and I felt confident that I could pass. The 63 came right after because it allowed me to offer securities in my state and be fully registered as an investment banker. The 63 is actually very tricky because it is prepared by NASAA and not by FINRA. Some of the materials are similar but the exam is very different from FINRA exams. 

I took the 79 last. 

I could’ve gone straight for the 79 but I think that taking the 82 was a good way to get started. It helps build up confidence and knowledge.  

The 82, for some, might feel like a practice exam for the 79.

Solomon Exam Prep: Out of the exams you passed, which one required the most study time and why? 

Fernando Russo: The 63 is trickier than most people think it is. The study materials are not as extensive as the 79 but the content is very specific and one needs to remember very detailed pieces of information (dates, percentages, etc.). I was studying a lot (2-3 hours a day during the week and 4-6 hours during weekends) but not getting the scores that I wanted on my practice exams, so I had to go back to the books and memorize 85% of the materials.  

I spent 25% more time studying for the 63 than for the 79.

“The audiobooks are great. I would listen to the chapters while driving, while working out and while doing many other activities.”

Solomon Exam Prep: How did you approach studying for your exams?  

Fernando Russo: I studied each chapter and then took a practice exam for that specific content or section. If I didn’t do well, I would go back to the materials and do it all over again until I passed. I did that over and over and over until I passed. I also found a lot of help in the notes that are found in the Resources Folder. These are great to find definitions, tables and simple explanations for seemingly complicated terms. The audiobooks are great. I would listen to the chapters while driving, while working out and while doing many other activities.

Solomon Exam Prep: How did you take the exams – at a testing center or remotely? How was your experience, and do you have any tips to share? 

Fernando Russo: I took all my exams at the same Prometric test center in Chicago, and I did so on Monday mornings. I took Friday off from work and studied all day on Friday and on Saturday. On Sunday, the day before each exam, I did not study at all. Instead of studying I spent the whole day doing a fun activity with my family.  

I think that is very necessary to allow the mind to rest before the exam. For each test I studied 30-45 days nonstop and one day of peace before the exam felt necessary. It worked. Each time I woke up the day of the test I felt relaxed and ready.  

Solomon Exam Prep: Any words of wisdom to help motivate others who are preparing for exams? 

Fernando Russo: Take the practice exams. Take them 1,000 times and then some more. I also recommend studying every day, even 10-15 minutes if the student is swamped with other activities. It keeps the mind engaged and the program moving forward. The content is not rocket science and the math is very simple. It just takes time, dedication and good study materials.

Visit the Solomon Exam Prep website to explore study materials for 21 different securities licensing exams, including the SIE, Series 63, Series 79, and Series 82.

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’re considering taking the Series 7 exam, Solomon Exam Prep is here to help. Solomon provides a wide variety of study materials, together with resources such as study schedules, the Ask The Professor function, and helpful exam information. Explore Solomon’s Series 7 study materials.

For more helpful securities exam-related content, study tips, and industry updates, join the Solomon email list. Click the button below:

What Are QIBs and Accredited Investors? What’s the Difference?

If you’re studying for securities licensing exams, such as the SIE or the Series 7, then you should understand the terms “accredited investor” and “QIB.” Continue reading

If you’ve been studying for the Series 7, 6, 14, 22, 24, 65, 79, or 82, or the Securities Industry Essentials (SIE), then you’ve had to learn about Regulation D private placements and Rule 144A sales. Regulation D private placements are securities offerings that are exempt from the normal SEC registration process and in many cases are sold only to “accredited investors” or limit the involvement of investors who are not accredited. Rule 144A sales are sales of unregistered securities to large institutional investors known as “qualified institutional buyers” or QIBs for short. 
 
You may have wondered about the difference between accredited investors and QIBs. On the surface, these may seem similar. Each refers to a category of investor with resources and/or knowledge above and beyond the average retail investor. So why not just have one standard for buyers under both Rule 144A and Regulation D? After all, the purpose of both Regulation D and Rule 144A is the same: to allow wealthier and more sophisticated investors easier access to investments that may be too risky for the average investor.  
 
To begin to answer this question, we have to start with the fact that wealth and sophistication fall on a spectrum. Investors aren’t neatly divided between small retail investors and huge financial institutions that move millions around without blinking an eye. 

Accredited Investors

You could think of accredited investors as a middle ground between these two extremes. Accredited investors are investors whose financial status or investment knowledge may give them a greater ability to handle the risks inherent in a private placement. There are many ways to qualify as an accredited investor but they all have one thing in common, which is that the SEC believes they indicate an ability to take on risks that regulators believe are unsuitable for most retail investors.

Accredited investors are investors whose financial status or investment knowledge may give them a greater ability to handle the risks inherent in a private placement.

All of the following are considered accredited investors:
  • Banks, broker-dealers, investment advisers, insurance companies, and investment companies
  • Corporations, trusts, partnerships, and LLCs with more than $5 million in assets
  • Most employee benefit plans with more than $5 million in assets
  • The issuer’s directors, executive officers, and general partners
  • If the issuer is a privately owned fund, (such as a hedge fund), a knowledgeable employee of the fund, which means an employee with at least 12 months’ experience working on the fund’s investment activities
  • Individuals with income of $200,000 in each of the last two years, or $300,000 in combination with a spouse or spousal equivalent such as a domestic partner
  • Individuals with a net worth more than $1 million, alone or with a spouse or spousal equivalent, not including primary residence
  • Individuals who hold any of these three designations in good standing:
    • Licensed General Securities Representative (Series 7)
    • Licensed Investment Adviser Representative (Series 65)
    • Licensed Private Securities Offerings Representative (Series 82)
  • Any firm where all owners are accredited investors (e.g., venture capital firms)
  • Any other entity with more than $5 million in investments that was not formed specifically to qualify as an accredited investor; the purpose of this category is to include entities that don’t neatly fit into any of the above categories, such as:
    • Native American tribes
    • Labor unions
    • Government bodies, including those of foreign governments
    • Investment funds created by government bodies
    • New types of business entities that may be introduced by new laws

An accredited investor that is not an individual—such as a business, governmental, or nonprofit entity—is sometimes called an institutional accredited investor (IAI).

Qualified Institutional Buyers

QIBs are a narrower group of large institutional investors. A QIB is a large institutional investor that owns at least $100 million worth of securities, not counting securities issued by its affiliates. For registered broker-dealers, the threshold is lower, just $10 million. A bank must also have a net worth of at least $25 million in order to be considered a QIB. 
 
If a firm has discretionary authority to invest securities owned by a QIB, those securities count toward whether the firm itself is considered a QIB. So if a broker-dealer has $9 million worth of securities in its own accounts, and holds $1 million worth of securities in a discretionary account belonging to a QIB, then the broker-dealer is itself a QIB.  

Common examples of QIBs include broker-dealers, insurance companies, investment companies, pension plans, and banks. However, any corporation, partnership, or LLC could qualify as a QIB. So can an IAI that owns at least $100 million in securities. Individuals can never be QIBs, regardless of their assets or financial sophistication.

Individuals can never be QIBs, regardless of their assets or financial sophistication.

Rule 144A allows QIBs to buy unregistered securities at any time, and freely trade these shares to other QIBs. In effect, QIBs can trade unregistered shares among themselves with almost the same ease as trading registered shares. Selling unregistered securities to anyone other than a QIB commonly requires a the seller to hold the securities for a period of up to 12 months. 

A QIB will virtually always meet the criteria to be an accredited investor, whereas an accredited investor may fall well short of QIB status.

Over time, other securities laws and regulations have made use of these two well-known categories. For example, in 2019 the SEC gave issuers more flexibility to test the waters with potential investors before deciding whether to go through with a public offering. When deciding which investors were sophisticated enough to receive test-the-waters communications, the SEC limited these communications to QIBs and institutional accredited investors. Additionally, references to institutional accredited investors have become more common, such as when the SEC revamped its rules around integration of offerings in March 2021.  
 
Know your QIBs from your accredited investors and be ready to pass your securities exam with Solomon Exam Prep.


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Solomon Pass Probability™ Now Available for the FINRA Series 82

Everyone would like to feel confident when they take their securities exam, but how do you know if you’re ready for test day? Solomon Exam Prep can help – with Pass Probability™. Continue reading

Everyone would like to feel confident when they take their securities exam, but how do you know if you’re ready for test day? Solomon Exam Prep can help! With Pass Probability™, now available for the FINRA Series 82 exam, Solomon takes the guesswork out of deciding when to sit for your exam.

Pass Probability™ is Solomon Exam Prep’s innovative technology that measures your readiness to pass your securities exam. Once you take five practice exams in the Solomon Exam Simulator, the Pass Probability™ tool calculates the probability that you will pass your test, with a percentage out of 100.

"A securities licensing exam is hard work and high stakes. Your enemy is uncertainty. Solomon's industry-leading Pass Probability™ feature is based on the results of thousands of Solomon securities students and uses a proprietary algorithm to reduce uncertainty. So you can enter the exam room with confidence."
Jeremy Solomon
Co-founder and President of Solomon Exam Prep

Remediation Reporting

But what should you do if you take five practice exams, and the Solomon algorithm determines that you are not ready to take your exam? This is where Solomon’s brand-new feature, the Remediation Report, comes in.

The Remediation Report is an individualized report outlining how to focus your efforts BEFORE taking your exam. It provides an added level of customized study support – sent right to your email.

The Remediation Report gives you:
  • Summary of current study progress 
  • Personalized recommendations on areas for growth 
  • Study tips for the homestretch 
  • Reminders about student support elements 

In addition to the Series 82, Solomon Pass Probability and Remediation Reports are currently available for the following exams: SIE, Series 6, Series 7, Series 63, Series 65, Series 66, and Series 79. 

Solomon Exam Prep Offers Powerful New AI Feature: Remediation Reporting

Learn about the Solomon Remediation Report, a new analytical feature designed to help students pass their securities licensing exams the first time. Continue reading

Solomon Exam Prep is delighted to announce an advanced analytical feature called a Remediation Report. The Solomon system analyzes a student’s five most recent practice exams and determines whether a student is ready to take his or her exam. If Solomon AI determines that a student is not ready to sit for their exam, then it creates an individual report with personalized guidance on how to remediate and prepare to pass. This custom Remediation Report is sent to the Solomon student’s email inbox.

The Solomon Remediation Report is connected to the Solomon Pass Probability tool, the industry-leading measure of a security exam prep student’s readiness to pass an exam. Solomon Pass Probability is based on thousands of student data points. Once a Solomon student has taken at least five practice exams, the Solomon Pass Probability feature is activated, and the Pass Probability metric is available in the student’s dashboard. The Solomon Remediation Report provides an additional level of customized study support by helping students focus their efforts and remediate before they sit for their exam.

Solomon Pass Probability and Remediation Reports are currently available for the following exams: SIE, Series 6, Series 7, Series 63, Series 65, Series 66, Series 79, and Series 82.

To learn about all the features of the Solomon Exam Prep learning system, watch the video overview.

What is a SPAC and should you care about it for the FINRA Series 79 exam?

SPACs have grown by leaps and bounds in recent years, and the growth is only accelerating. What will this mean for regulations and the Series 79 exam? Continue reading

It sounds like a securities-industry riddle: what do you call a blank check company with no hard assets that holds a multimillion dollar IPO? But the answer is very real: SPACs (special purposes acquisition companies) are an alternative to traditional IPOs that have exploded in popularity.

What’s a “blank check company?”  A blank check company is an exchange-listed shell company that, according to the SEC, has “no specific business plan or…its business plan is to engage in a merger or acquisition.”

The purpose of a SPAC is to raise money to acquire a privately held company. Think of it as crowdfunding on a massive scale. First, the SPAC sells shares of itself in an IPO. Then it uses the IPO proceeds to fund a merger between itself and a target company. When the merger is complete, the SPAC’s shareholders become shareholders in the target company. Investors buy SPAC shares based on their confidence that the SPAC’s management will complete the merger, and the anticipated value of the shares after the merger.

SPACs have grown by leaps and bounds in recent years, and the growth is only accelerating. The amount raised by SPAC IPOs in 2020 more than quadrupled the amount they raised in 2019. According to Reuters, the total value of SPAC mergers in 2021 has already exceeded the total size of SPAC mergers for all of 2020.

What does this mean for regulations?

As investor excitement around SPACs has heated up, there are indications that the SEC is beginning to take a closer look at this new kind of IPO. On March 10th, the SEC issued a warning against investing based on celebrity involvement with a SPAC. Celebrities with high-profile ties to SPACs include A-Rod, Shaquille O’Neal, Serena Williams, and former Speaker of the House Paul Ryan. Acting SEC Chair Allison Herren Lee recently warned of “more and more evidence on the risk side of the equation for SPACs as we see studies showing that their performance for most investors doesn’t match the hype.”

While none of this guarantees that new rules for SPACs are around the corner, it does make it more likely that FINRA’s Series 79 investment banking exam may begin to include mention of SPACs. They are a topic that investment bankers are increasingly likely to encounter in practice, and therefore are increasingly likely to be viewed as fair game for the exam.

Solomon Exam Prep is ahead of the curve with new material in our Series 79 Study Guide. Series 79 customers can find material on SPACs now included in the online edition of Solomon Study Guide.

Potentially testable points about SPACs include:
  • SPAC are formed by “sponsors,” commonly institutional investors or high net worth individuals, who are compensated with both a portion of the IPO proceeds, as well as an equity stake in the SPAC of up to 20%.
  • SPAC’s typically avoid committing to merge with a specific company, even if the SPAC was formed with the intention of targeting that company. The SPAC’s management may respond to changing market conditions by choosing a different target, subject to approval from the SPAC’s shareholders.
  • After a SPAC goes public, its shares trade freely on exchanges even before it completes a merger.
  • A SPAC must hold at least 85% of proceeds from its IPO in an escrow account.
  • The SPAC commits to return investor funds if it fails to complete a merger within a specified timeframe.
  • As a blank check company with no business operations of its own, a SPAC cannot take advantage of certain options available to more established securities issuers. For example, a SPAC is not permitted to make an electronic version of its road show presentation.

Solomon Exam Prep will continue to follow industry trends and how they affect your licensing exams.

Solomon Exam Prep has helped thousands pass their securities licensing exams, including the SIE and the Series 3, 6, 7, 14, 22, 24, 26, 27, 28, 50, 51, 52, 53, 54, 63, 65, 66, 79, 82 and 99.

March Study Question of the Month

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

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 Series 14, 79, 82, and SIE exams.

Question:

A research analyst who works for an underwriter that participated in an IPO may not publicly discuss or write a research report about the company until __________________.

Answer Choices:

A. 30 days after the registration is filed 

B. 20 days after the securities are issued

C. 10 days after the date of the IPO

D. 30 days after the date of the IPO

Correct Answer: C – 10 days after the date of the IPO

Explanation: A research analyst who works for an underwriter of an IPO must not discuss or write a research report about the company for 10 days after the IPO.  This 10-day period of silence is called a ‘quiet period.’ There is no quiet period for EGCs (emerging growth companies). 


To explore free samples of Solomon Exam Prep’s industry-leading online exam simulators for the SIE, Series 14, Series 79, Series 82, and many more exams, visit the Solomon website here.