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All Series 7 Formulas
Seeking Business for the Broker-Dealer
8 items
Green shoe overallotment maximum
, = maximum additional shares manager may purchase, N = original offering size in shares
Selling concession from total spread
, C = selling concession per share, S = total spread, M = manager's fee per share, U = underwriting fee per share
Net investment income (mutual fund)
, NII = net investment income; capital gains are excluded
Eastern (undivided) account unsold share liability
, = member i's unsold-share liability, = member's participation percentage, U = total unsold shares across syndicate
Underwriting spread
, = public offering price per share, = price syndicate pays issuer per share
Bull call spread (debit spread), max gain, max loss
Long call + short call (). Net debit .
Covered call, max gain, max loss, breakeven
Long stock + short call strike , premium .
at
Long straddle, breakevens
Long call + long put, same , same expiry. Cost = .
(at )
Opening Accounts
8 items
529 plan superfunding maximum contribution
, = maximum lump-sum 529 contribution treated as 5 years of gifts, G = annual gift tax exclusion
Minimum market value before a long maintenance call
, Debit = debit balance (amount owed). At this LMV, equity = 25% of market value (minimum maintenance).
Margin buying power from SMA
(at 50% Reg T). SMA = special memorandum account balance; BP = buying power. SMA rises with LMV but does not fall when LMV declines.
FINRA minimum maintenance margin (long and short)
Long: ; Short: . LMV = long market value, SMV = short market value, MM = minimum maintenance equity required.
Rule 144 affiliate volume limit per 3-month period
Exchange-listed stock: , where is shares outstanding of the class and the average weekly reported volume over the four calendar weeks before filing Form 144. OTC stock: 1% of the class.
Restricted margin account retention requirement
Account is restricted if Equity < 50% Reg T. On a sale: , applied to reduce the debit balance; the other 50% releases to SMA.
Bond accrued interest (30/360 convention)
30/360: each month = 30 days. Corp + muni bonds.
Treasuries use actual/actual.
Regulation T initial margin requirement
, P = total purchase price. Deposit can never exceed 100% of P (a small first trade requires only its full cost, not $2,000).
Investment Products and Recommendations
19 items
Short margin account credit balance
, CR = credit balance, Proceeds = short sale proceeds, Reg T deposit = 50% of proceeds
Current yield (bond)
. Discount: Nominal < CY < YTM < YTC. Premium: YTC < YTM < CY < Nominal.
Price-to-earnings ratio and dividend payout ratio
; . EPS = earnings per share, DPS = common dividends per share.
Excess equity in a long margin account
, Equity = LMV − DR, LMV = long market value, 0.5 = Reg T initial requirement. With no other account activity, SMA increases only when EE exceeds its existing balance; market declines do not reduce SMA.
Short (naked) call and short put: max gain, max loss
Short call: max gain ; max loss = unlimited. Short put: max gain ; max loss . P = premium received, S = strike price.
Rights theoretical value (cum-rights and ex-rights)
Cum-rights: . Ex-rights: . M = market price, S = subscription price, N = rights needed to buy one share.
Long call: max gain, max loss, breakeven
Max gain = unlimited; Max loss = premium paid; . BE = breakeven, Strike = exercise price, Premium = cost paid per share.
Short margin account equity
, CR = credit balance (proceeds + Reg T), SMV = current short market value
Short straddle: max gain, max loss, breakevens
, , . TP = total premium received (call + put), K = strike. SILO: short profits Inside breakevens.
Convertible bond conversion ratio and parity
; Stock parity ; Bond parity . CR = conversion ratio, Par usually $1000.
Long put: max gain, max loss, breakeven
, , . Strike = strike price, Premium = premium paid. Max gain assumes stock falls to $0.
Tax-equivalent yield and after-tax corporate yield
; After-tax corporate yield . Tax Bracket = investor's marginal rate (decimal).
Working capital and current ratio
; . CA = current assets, CL = current liabilities. WC measures short-term liquidity in dollars; ratio expresses it as a multiple.
Long margin account equity
, LMV = long market value, DR = debit balance
Municipal bond discount accretion (cost basis)
; Discount = par - cost. Basis steps up by accretion each year toward par. OID accretion is tax-free interest for the original buyer.
Vertical spread breakevens (CAL and PUSH)
CAL: (call spreads). PUSH: (put spreads). Net premium = premium paid − premium received.
Credit spreads (bull put, bear call): max gain, max loss
, . Net credit = premium received - premium paid; strike diff = higher strike - lower strike.
Government bond accrued interest (actual/actual)
, C = semiannual coupon ($). Treasuries use actual/actual; accrue from last coupon up to but NOT including settlement.
Municipal bond premium amortization (cost basis)
Straight-line: ; adjusted basis = cost years held. A = annual amortization, P = premium (price par), N = years to maturity. Muni premium is NOT deductible; no capital loss if held to maturity.
Processing Transactions
10 items
Bond price change approximation from duration
, D = duration (years), Δy = change in yield (decimal, e.g. 0.0050 for 50 bps)
Protective put maximum loss
, P = stock purchase price, K = put strike, Pr = premium paid per share
Sharpe ratio
, = portfolio return, = risk-free rate, = portfolio standard deviation
Closed-end fund discount or premium to NAV
, NAV = net asset value per share, P = market price; positive = discount, negative = premium
Bear put spread maximum gain (debit)
, = higher (long) strike, = lower (short) strike, = net debit paid
Mutual fund public offering price (POP) from NAV and sales charge
, NAV = net asset value per share, SC = sales charge expressed as a decimal percent of POP
Mutual fund sales charge percentage
, POP = public offering price, NAV = net asset value per share; denominator is always POP, not NAV
Call option intrinsic value
, M = market price of underlying, K = strike price; zero if out of the money
Put option intrinsic value
, K = strike price, M = market price of underlying; zero if out of the money
Earnings per share (EPS)
, NI = net income, = preferred dividends, S = common shares outstanding
Series 7 Limits and Thresholds
Seeking Business for the Broker-Dealer
13 items
Under FINRA Rule 2210, a testimonial about a firm's advice or performance must disclose that it is paid if compensation exceeds $100 in value.
After a non-EGC IPO, participating underwriters and dealers generally face a minimum 10-day research quiet period.
In year one a new member files public-media retail communications, fund pieces too, at least 10 business days before first use; other investment company retail communications are filed within 10 business days after first use.
Under FINRA Rule 2210, a communication sent to 25 or fewer retail investors in 30 days is correspondence, while more than 25 is a retail communication.
Under FINRA Rule 3220, the annual gift limit is $300 per person per year (raised from $100 effective March 2026), and firm policies cannot exceed this FINRA maximum.
Variable life illustrations may use hypothetical gross rates up to 12% but must include a 0% rate.
Retail options communications not accompanied or preceded by the ODD must be filed with FINRA at least 10 calendar days before use.
The green shoe (overallotment) option lets the manager buy up to 15% additional shares from the issuer at the offering price.
Accredited individual: income over $200,000 ($300,000 with a spouse or spousal equivalent) in each of the past two years and expected again this year, or net worth over $1,000,000 excluding the primary residence.
Reg A+ Tier 1 allows up to $20 million per 12 months, while Tier 2 allows up to $75 million and preempts state securities registration and qualification requirements.
Rule 506(b) bars general solicitation but allows up to 35 sophisticated non-accredited purchasers (alone or with a purchaser representative); 506(c) allows general solicitation but only accredited purchasers.
In a non-reporting issuer's IPO, the preliminary prospectus must reach buyers at least 48 hours before confirmations are sent.
Rule 144 requires restricted securities to be held for 6 months if the issuer has been subject to SEC reporting for at least 90 days immediately before sale; otherwise, 1 year.
Opening Accounts
13 items
FINRA replaced the day-trading margin provisions of Rule 4210 with intraday margin standards effective June 4, 2026, eliminating the pattern day trader designation and its $25,000 minimum equity requirement.
Traditional IRA owners must begin RMDs by April 1 of the year after turning 73 (75 if born in 1960 or later), with a 25% excise tax on amounts not distributed.
Before an account opens, CIP requires at a minimum four items: name, date of birth, address, and identification number.
Section 457(b) distributions escape the 10% early withdrawal tax at any age, except on money rolled in from a qualified plan or IRA.
Under Regulation T, freeriding in a cash account triggers a 90-calendar-day freeze, during which purchases require cash in advance.
Under ACATS the carrying firm has 1 business day to validate the transfer instruction and 3 business days after validation to complete the transfer.
FINRA Rule 2165: a hold on a specified adult's disbursement or securities transaction lasts 15 business days, 10 more on internal review, and 30 more after a report to a state regulator or an agency or court of competent jurisdiction.
Selling away private securities transactions falls under FINRA Rule 3280 while outside business activities like tax preparation fall under Rule 3270.
Officers, directors and holders of more than 10% of a company's stock are insiders under Section 16, and an affiliate whose Rule 144 sales top 5,000 shares or $50,000 in three months must file Form 144.
Under T+1 settlement, Regulation T requires cash-account payment within 3 business days after trade date.
An indirect 401(k) rollover must be completed within 60 days of receipt, and the payout to the participant carries 20% mandatory withholding.
Under FINRA Rule 3210, a new hire must obtain the employer's written consent for existing outside securities accounts within 30 calendar days.
Under SEC Rule 17a-3(a)(17), firms send customers their account record within 30 days of opening and at least every 36 months thereafter.
Investment Products and Recommendations
42 items
Under T+1 settlement the ex-dividend date falls on the record date itself (no longer the day before), and on the ex-date the stock price drops by approximately the quarterly dividend amount.
Rights are short-lived securities that typically expire in 30 to 45 days and carry a subscription price below the current market price.
Penny stocks generally trade below $5 per share. For a nonexempt purchase, SEC Rule 15g-9 requires a broker-dealer to give written account approval and get a signed suitability statement before the customer's first purchase.
Common dividends qualify for the lower capital gains rate if held at least 61 days during the 121-day period beginning 60 days before the ex-dividend date.
For normally distributed returns, about 68% fall within one standard deviation of the mean and 95% within two.
The overall market has a beta of 1.0, while Treasury bills have a beta of 0.
When inventory prices rise, FIFO produces higher reported earnings, while LIFO produces lower income taxes.
Penny stock exclusions include issuer net tangible assets over $2 million after at least 3 years of operation, or over $5 million if younger.
Tender offers must remain open at least 20 business days, and a price change requires at least 10 business days from notice of the change.
FINRA Rule 2330 requires principal review within 7 business days after the OSJ receives a complete, correct deferred variable annuity application.
A REIT must derive at least 75% of gross income from real estate and at least 95% from real estate plus other passive sources.
Gains and losses on Section 1256 broad-based index options are treated as 60% long-term and 40% short-term regardless of holding period.
FINRA caps 12b-1 fees at 0.75% for distribution plus 0.25% for service, totaling 1.00% maximum, and fees above 0.25% bar a fund from calling itself no-load.
A REIT must distribute at least 90% of taxable income, hold at least 100 shareholders, and avoid more than 50% of shares held by five or fewer individuals.
Variable annuity withdrawals use LIFO: earnings come out first as ordinary income. Before age 59½, the taxable portion generally also incurs a 10% early withdrawal penalty.
A letter of intent lets an investor commit to a breakpoint amount over 13 months to receive the reduced sales charge on every purchase.
529-to-Roth IRA rollovers have a $35,000 lifetime cap and require the 529 account to have been open at least 15 years.
Municipal bond accrued interest is generally calculated using 30-day months and a 360-day year.
Treasury notes and bonds are quoted in 32nds of a point, with each increment worth $0.3125 per $1,000 of par value.
An individual with at least $50 million in total assets qualifies as an institutional investor and need not be offered CMO educational material.
At 100% PSA, the annual prepayment rate starts at 0.2% in month 1 and rises monthly to 6% at month 30, then stays constant.
A private hedge fund relying on Section 3(c)(1) may have no more than 100 beneficial owners and must make no public offering.
Under SEC Rule 15c2-12, municipal issuers must file required material event notices with the MSRB within 10 business days of the event.
Under FINRA Rule 2121, the 5% markup policy is a guideline, so a markup below that percentage can still be unfair.
For mutual funds without asset-based sales charges, the maximum sales load is 8.5% of POP, falling to 7.25% if a service fee is paid.
Net capital losses can offset up to $3,000 of ordinary income annually, or $1,500 if married filing separately.
The VIX measures expected volatility of the S&P 500 over the next 30 days, as implied by index option prices.
An RSI reading above 70 signals overbought conditions, while a reading below 30 signals oversold conditions.
A long straddle's upper breakeven is Strike + total premiums and its lower breakeven is Strike - total premiums, using both premiums added together.
A standard listed equity option covers 100 shares, is guaranteed by the OCC, and expires on the third Friday of the expiration month.
For a covered call, max gain = (Strike - Purchase price) + Premium and breakeven = Purchase price - Premium.
An options account needs the ODD delivered at or before approval, written approval of the account, and the customer's signed options agreement within 15 days after approval.
FINRA Rule 2165 covers adults age 65 or older, or age 18 or older with an impairment reasonably believed to prevent them from protecting their interests.
Retail corporate and agency bond confirmations reference TRACE, while retail municipal bond confirmations reference EMMA.
Taxable equivalent yield equals tax-free yield / (1 - marginal tax rate), so a 3.50% muni in the 32% bracket has a TEY of 5.15%.
On a premium bond the yields rank nominal > current > YTM, which fully reverses to YTM > current > nominal on a discount bond.
Conversion ratio equals par value / conversion price, so a $1,000 bond with a $50 conversion price converts into 20 shares.
T-bills mature in 1 year or less and pay no coupon, T-notes are issued with maturities of 2-10 years, and T-bonds are issued with terms of 20 or 30 years.
A turnover ratio of 6:1 or higher and a high cost-to-equity ratio are common signs of churning, though no single number decides it; since 2020 a finding no longer requires that the representative control the account.
Hedge funds use a "2 and 20" fee structure (2% management on assets plus 20% performance on profits above the high-water mark).
SIPC covers $500,000 per customer with a $250,000 sub-limit on cash and protects against broker-dealer insolvency only, never market losses.
Hedge funds generally target accredited investors or qualified purchasers. An individual qualified purchaser owns at least $5 million in investments, and hedge fund lock-up periods typically run 1-3 years.
Processing Transactions
15 items
Under SEC Rule 17a-4, blotters are kept 6 years and business communications 3 years, while FINRA Rule 4513 keeps customer complaints 4 years.
For 2026, the annual gift tax exclusion is $19,000 per donor per recipient, and a married couple using gift splitting can give $38,000 per recipient.
Reg T initial margin is 50%, FINRA long maintenance is 25%, and short stock at $5 or more needs the greater of 30% of short market value or $5 a share.
The wash sale rule disallows a loss if substantially identical securities are bought within 30 days before or after the sale. For replacement securities bought in a taxable account, the disallowed loss is added to their cost basis.
Under NYSE Rule 72, Supplementary Material .10, a block is at least 10,000 shares or $200,000 in market value, whichever is less.
For NMS stocks, prior evaluation-period average closing prices of $250.01-$1,000 and $1,000.01-$10,000 set round lots of 40 and 10 shares, respectively.
Marketwide circuit breakers trigger at S&P 500 declines from the prior close of 7% for Level 1, 13% for Level 2 and 20% for Level 3.
Under Regulation SHO, a threshold security is an SEC-reporting stock on an SRO threshold list with aggregate clearing-agency fails ≥10,000 shares and ≥0.5% of shares outstanding for 5 consecutive settlement days.
Under Rule 201, a decline of 10% or more from the prior close triggers the short-sale price test for the rest of that day and the next trading day.
Under Rule 204, fails must close out by the start of trading on T+2 for short sales or T+4 for long sales and bona fide market making.
For distributions of 25% or more of a stock's value, the ex-dividend date is the first business day after the payable date.
Off-exchange equity trades must be reported within 10 seconds, while corporate, agency and municipal bond trades must be reported within 15 minutes.
FINRA customer simplified arbitration generally uses one public arbitrator for claims of $50,000 or less, excluding interest and expenses.
Form U4 amendments are due within 30 days after the firm learns the facts, except statutory disqualification amendments, due 10 days after disqualification.
FINRA maintenance for short stock priced below $5 per share is the greater of 100% of short market value or $2.50 per share.
