Free FINRA Series 7 (General Securities Representative) Seeking Business for the Broker-Dealer Practice Questions
Communication and marketing rules on the FINRA Series 7 exam cover retail communications, correspondence, institutional communications, FINRA Rule 2210 approval requirements, and fair dealing obligations for registered representatives (FINRA).
Sample Questions
Question 1
Easy
All of the following are components of the gross underwriting spread EXCEPT:
Solution
A is correct. The gross underwriting spread is the difference between the public offering price and the proceeds paid to the issuer, and it is divided into three parts: the manager's fee, the underwriting fee, and the selling concession (which together with the additional takedown form the total takedown). A green shoe is an overallotment option that lets underwriters sell up to 15% additional shares; it is a distribution mechanism, not a portion of the spread.
Question 2
Medium
All of the following are accurate regarding a Regulation D, Rule 506(b) private placement EXCEPT:
Solution
B is correct. Rule 506(b) prohibits general solicitation and general advertising; the issuer must have a pre-existing relationship with offerees. The ability to advertise broadly is the distinguishing feature of Rule 506(c), which in exchange requires that all purchasers be accredited and that their accredited status be verified. Under 506(b) the issuer may sell to an unlimited number of accredited investors plus up to 35 non-accredited sophisticated investors, with no ceiling on the dollar amount raised.
Question 3
Hard
Under FINRA Rule 2210, which category of communication requires principal pre-approval before first use?
Solution
Choice B is correct because FINRA Rule 2210 classifies communications into three categories: correspondence, institutional communication, and retail communication. Retail communications — defined as any written communication distributed or made available to more than 25 retail investors within any 30-calendar-day period — require approval by a registered principal before first use or filing with FINRA.