FINRA Series 7 (General Securities Representative) Glossary
28 essential terms and definitions for FINRA Series 7 (General Securities Representative). Each definition is written for exam preparation, covering the concepts as they are tested on the 2026 syllabus.
1
- 12b-1 Fee
- 12b-1 fee is an annual fee charged by a mutual fund from fund assets to cover distribution and marketing expenses, capped by FINRA at 0.75% for distribution and 0.25% for service fees.
A
- Accredited Investor
- Accredited investor is an individual or entity that meets specific SEC income or net worth thresholds, qualifying to participate in private placements and other offerings exempt from full registration requirements.
B
- Best Execution
- Best execution is the obligation of a broker-dealer to use reasonable diligence to execute a customer's order at the most favorable terms available under prevailing market conditions, considering price, speed, and likelihood of execution.
C
- Call Option
- Call option is a contract that gives the holder the right, but not the obligation, to buy a specified quantity of an underlying security at a predetermined strike price on or before the expiration date.
- Capital Gain Distribution
- Capital gain distribution is a payment made by a mutual fund or ETF to its shareholders from the net realized capital gains generated by the fund's portfolio transactions during the year.
- Customer Protection Rule (Rule 15c3-3)
- SEC Rule 15c3-3 requires broker-dealers to maintain possession or control of all fully paid and excess margin customer securities, and to segregate customer cash in a special reserve bank account.
D
- Debenture
- Debenture is an unsecured corporate bond backed only by the general creditworthiness of the issuer, ranking below secured bonds but above subordinated debentures in the event of liquidation.
F
- FINRA Rule 2111 (Suitability)
- FINRA Rule 2111 requires that a broker-dealer have a reasonable basis to believe a recommended transaction or investment strategy is suitable for the customer based on the customer's investment profile, including risk tolerance, financial situation, and objectives.
G
- General Obligation Bond
- General obligation bond is a municipal bond backed by the full faith, credit, and taxing power of the issuing governmental entity, with debt service paid from general tax revenues rather than a specific revenue source.
I
- Investment Company Act of 1940
- Investment Company Act of 1940 is the federal law that regulates the organization, operations, and disclosure requirements of investment companies, including mutual funds, closed-end funds, and unit investment trusts.
M
- Margin Account
- Margin account is a brokerage account in which the broker-dealer lends the customer funds to purchase securities, with the securities serving as collateral for the loan and subject to Regulation T initial margin and FINRA maintenance margin requirements.
- Margin Requirement (Regulation T)
- Regulation T, set by the Federal Reserve Board, establishes the initial margin requirement for purchasing securities on credit, currently set at 50% for equity securities, meaning the customer must deposit at least half the purchase price.
- Municipal Bond
- Municipal bond is a debt security issued by a state, city, or local government entity to finance public projects, with interest income generally exempt from federal income tax and often exempt from state and local taxes for residents of the issuing state.
- Mutual Fund
- Mutual fund is an open-end investment company that pools money from multiple investors to purchase a diversified portfolio of securities, with shares purchased and redeemed at the fund's net asset value at the end of each trading day.
N
- Net Asset Value
- Net asset value (NAV) is the per-share value of a mutual fund or ETF, calculated by dividing the total market value of all securities in the portfolio minus liabilities by the total number of shares outstanding.
O
- Options Contract
- Options contract is a derivative that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a specified quantity of an underlying asset at a set strike price before or at expiration. Standard equity options represent 100 shares.
P
- Primary Market
- Primary market is the market in which newly issued securities are sold for the first time to investors, with proceeds going to the issuing entity, as opposed to the secondary market where previously issued securities trade between investors.
- Prospectus
- Prospectus is the legal disclosure document filed with the SEC that provides detailed information about a securities offering, including the issuer's financial condition, risks, management, and use of proceeds, required to be delivered to investors before or at the time of sale.
- Put Option
- Put option is a contract that gives the holder the right, but not the obligation, to sell a specified quantity of an underlying security at a predetermined strike price on or before the expiration date.
R
- Revenue Bond
- Revenue bond is a municipal bond whose debt service is paid exclusively from the revenue generated by a specific project or facility (such as a toll road, hospital, or water system), not backed by the issuer's taxing power.
S
- Secondary Market
- Secondary market is the market where previously issued securities are traded among investors, providing liquidity and price discovery without generating new capital for the issuer.
- Securities Act of 1933
- Securities Act of 1933 is the federal law requiring that securities offered to the public be registered with the SEC and that investors receive a prospectus with material information, designed to prevent fraud in the sale of newly issued securities.
- Securities Exchange Act of 1934
- Securities Exchange Act of 1934 is the federal law that created the SEC and governs the secondary trading of securities, regulating exchanges, broker-dealers, and public company reporting requirements including Forms 10-K, 10-Q, and 8-K.
- Syndicate
- Syndicate is a group of investment banks or broker-dealers that jointly underwrite and distribute a new securities offering, sharing the risk and responsibility of selling the issue to investors.
T
- Trade Settlement
- Trade settlement is the process of transferring securities from seller to buyer and cash from buyer to seller after a trade is executed. Standard settlement for most securities is T+1 (one business day after the trade date).
U
- Underwriting
- Underwriting is the process by which an investment bank raises capital for an issuer by purchasing securities from the issuer and reselling them to investors, with firm commitment (full risk) and best efforts (no guarantee) being the two primary types.
V
- Variable Annuity
- Variable annuity is an insurance contract that provides periodic payments during retirement, with the payment amount varying based on the performance of underlying investment sub-accounts chosen by the contract owner. It is both a security and an insurance product.
W
- Wash Sale Rule
- Wash sale rule is an IRS regulation that disallows a tax deduction for a loss on the sale of a security if a substantially identical security is purchased within 30 days before or after the sale.