Tag Archives: series 7 exam

Series 79 Opt In Period Begins

Investment Banking Representative Exam Goes Live

Today marks the first day that current Series 7 licensed representatives of BDs who engage in “investment banking activities” can opt in to the Series 79 license.  Current Series 7’s will need to talk with their compliance department who will be able to complete a Form U4 update for the rep.  According to a FINRA representative I talked with last week, the opt in process will be very easy – essentially the compliance person for the BD will go into the CRD system, check the Series 79 box for the appropriate BD reps and then submit the revised U4 to FINRA.

Reps who engage in investment banking activities should make sure that they have opted in before May 3, 2010 or they will be required to take the exam which is 5 hours long (175 multiple choice questions).

Series 79 Articles

  • Regulatory Notice 09-41 – this article reprint’s FINRA’s notice to members.  Notice includes: background and discussion on exam, discussion of the opt in period, information on the training program exception, information on requirement for principals, outline of content, registration procedures, effective date and FAQs.
  • Series 79 Content Outline – FINRA’s content outline for the new exam.  Provides an overview of the major categories and sub-categories which will be tested.
  • Series 79 Questions and Answers – in this article we address some of the questions which have been posed to us regarding the new investment banking exam.

Other related hedge fund law articles include:

Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs Hedge Fund Law Blog and can be reached directly at 415-868-5345.

Series 7 Exam Overview | General Securities Representative Exam

What is the Series 7 Exam?

The Securities and Exchange Commission requires that individuals who want to enter the securities industry to sell any type of securities must take and pass the Series 7 examination to qualify as a general securities representative.  Individuals who are Series 7 licensed are eligible to register with all self-regulatory organizations to trade. The cost of the exam is $250, and it can be taken at any of numerous testing centers across the country on any regular business day.  The only prerequisite for the exam is that the exam taker must be sponsored by a financial company who is a member of FINRA or a Self-Regulatory Organization (SRO).

Breakdown of the Exam

The Series 7 consists of 250 multiple choice questions, divided into two sections of 125 questions each, and exam takers are allotted 3 hours per section.  The registration qualifies a candidate for the solicitation, purchase, and/or sale of al securities products, including corporate securities, municipal securities,  municipal fund securities, options, direct participation programs, investment company products, and variable contracts. The exam covers a broad range of investments including: stocks, bonds, options, limited partnerships, and investment company products (e.g., open- and closed-end funds).  A candidate must answer 70% of the questions correctly in order to pass.

The exam typically has the following breakdown with regards to how the questions are categorized:

  • Prospecting for and Qualifying Customers:
    9 questions,  4% of exam
  • Evaluating Customer Needs and Objectives:
    4 questions, 2% of exam
  • Providing Customers with Investment Information and Making Suitable Recommendations:
    123 questions, 48% of exam
  • Handling Customer Accounts and Account Records:
    27 questions, 11% of exam
  • Understanding and Explaining the Securities Markets’ Organization and Participants to Customers:
    53 questions, 21% of exam
  • Processing Customer Orders and Transactions:
    13 questions, 5% of exam
  • Monitoring Economic and Financial Events, Performing Customer Portfolio Analysis and Making Suitable Recommendations:
    21 questions, 8% of exam

The Series 7 exam topics include:

  • Fiduciary Accounts
  • Hypothecation
  • Roth IRA
  • Insider Trading
  • Short Selling
  • SIPC
  • FINRA Code of Procedure
  • Discretionary Brokerage Accounts
  • Fannie Mae
  • Certificates of Deposit
  • SEC Act of 1934
  • Cyclical Industries
  • Short Interest Theory
  • 401k Plans
  • Foreign Mutual Funds
  • New York Stock Exchange
  • Combination Privilege
  • Stock Split
  • Margin Trading
  • Benefits of Stock Ownership
  • REITs
  • Authorized Stock
  • Company’s Net worth
  • Book Value vs. Market Value
  • Stock Certificate
  • Warrants
  • American Depositary Receipt
  • Dividends

Useful Terms to Know for the Series 7 Exam

Exam takers are expected to be familiar with the following terms and definitions prior to taking the Series 7 exam. The definitions presented below have been extracted from  Investopedia.

1.   Collateralized Mortgage Obligation – CMO:

A type of mortgage-backed security that creates separate pools of pass-through rates for different classes of bondholders with varying maturities, called tranches. The repayments from the pool of pass-through securities are used to retire the bonds in the order specified by the bonds’ prospectus.

2.  Defensive Investment Strategy:

A method of portfolio allocation and management aimed at minimizing the risk of losing principal. Defensive investors place a high percentage of their investable assets in bonds, cash equivalents, and stocks that are less volatile than average.

3.  Direct Participation Program – DPP:

A business venture designed to let investors participate directly in the cash flow and tax benefits of the underlying investment. DPPs are generally passive investments that invest in real estate or energy-related ventures.

4.  Liquidity Risk:

The risk stemming from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss.

5.  No-Par Value Stock:

Stock that is issued without the specification of a par value indicated in the company’s articles of incorporation or on the stock certificate itself.

6.  Options Clearing Corporation – OCC:

A clearing organization that acts as both the issuer and guarantor for option and futures contracts.

7.  Repurchase Agreement – Repo:

A form of short-term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day.

For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction, (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement.

8.  Systematic Risk:

The risk inherent to the entire market or entire market segment.  Also known as “un-diversifiable risk” or “market risk.”

9.  U.S. Treasury:

Created in 1798, the United States Department of the Treasury is the government (Cabinet) department responsible for issuing all Treasury bonds, notes and bills. Some of the government branches operating under the U.S. Treasury umbrella include the IRS, U.S. Mint, Bureau of the Public Debt, and the Alcohol and Tobacco Tax Bureau.

How to sign up to take the Series 7

The Financial Industry Regulatory Authority (FINRA) administers the Series 7 in the United States at Thomson Prometric Testing Centers or Pearson Professional Center.  To make a test appointment or to address any questions related to a test appointment with Thompson Prometric Testing Center, exam takers may contact the Thomson center ( 1-800-578-6273) or the Pearson Center (1-866-396-6273).

To register for the exam, exam takers must complete the Form U-4 application. The sponsoring firm should then send the U-4 form along with your fingerprints, to FINRA for processing. Once the information has been processed, a confirmation will be sent to the sponsoring firm.

What Exam Takers are Saying

The Series 7 is considered to be one of the more comprehensive and lengthy exams administered by FINRA, mainly because it is required of anyone who intends to become a licensed stock broker.  The pass rate is approximately 65-70%.

In the Series 7, questions regarding options tend to be one of the biggest challenges, according to test takers.  This is primarily because these questions make up a large part of the exam (50 questions total, 35 of which deal with options strategies) and many candidates have never been exposed to options contracts and strategies.

In general, purchasing study guides or taking a prep class is the most common approach among those who have passed the Series 7 exam on the first try.  While there are a variety of resources available in print and online, the majority of test takers surveyed agree that the best way to ensure first-time passage is to take numerous practice tests and familiarize oneself with the terminology and question types presented in the the exam.


Please contact us if you have any questions or would like t0 start a hedge fund.  Other related hedge fund law articles include:

Series 79 Exam

FINRA to Announce New Investment Banking Examination

For many years now all brokers have been treated equally with regard to examination requirements. Whether a broker was working solely with retail clients or solely with institutions on a private placement basis, each such broker would need to take and pass the Series 7 examination in order to become a representative (broker) at the BD (broker firm or broker-dealer). Now, however, there will be a new exam for those brokers whose only acitivites are “investment banking” activities. In the near future these brokers will only need to take and pass a new exam called the Series 79 exam which will presumably be more focused and shorter than the all-day Series 7 exam. I will continue to update this article after the 4th of July weekend, but below I have included the full text of the new FINRA Rule 1032(i) which provides for a new Investment Banking representative registration.

Text of Rule 1032(i)

FINRA Rule 1032. Categories of Representative Registration

(a) through (h) No change.

(i) Limited Representative-Investment Banking

(1) Each person associated with a member who is included within the definition of a representative as defined in NASD Rule 1031 shall be required to register with FINRA as a Limited Representative-Investment Banking and pass a qualification examination as specified by the Board of Governors if such person’s activities involve:

(A) advising on or facilitating debt or equity securities offerings through a private placement or a public offering, including but not limited to origination, underwriting, marketing, structuring, syndication, and pricing of such securities and managing the allocation and stabilization activities of such offerings, or

(B) advising on or facilitating mergers and acquisitions, tender offers, financial restructurings, asset sales, divestitures or other corporate reorganizations or business combination transactions, including but not limited to rendering a fairness, solvency or similar opinion.

(2) Notwithstanding the foregoing, an associated person shall not be required to register as a Limited Representative-Investment Banking if such person’s activities described in paragraph (i)(1) are limited to:

(A) advising on or facilitating the placement of direct participation program securities as defined in NASD Rule 1022(e)(2);

(B) effecting private securities offerings as defined in paragraph (h)(1)(A); or

(C) retail or institutional sales and trading activities.

(3) An associated person who participates in a new employee training program conducted by a member shall not be required to register as a Limited Representative-Investment Banking for a period of up to six months from the time the associated person first engages within the program in activities described in paragraphs (i)(1)(A) or (B), but in no event more than two years after commencing participation in the training program. This exception is conditioned upon the member maintaining records that:

(A) evidence the existence and details of the training program, including but not limited to its scope, length, eligible participants and administrator; and

(B) identify those participants whose activities otherwise would require registration as a Limited Representative-Investment Banking and the date on which each participant commenced such activities.


Please contact us if you have any questions or would like to  learn how to start a hedge fund.  Other related hedge fund law articles include:

Bart Mallon, Esq. runs hedge fund law blog and has written most all of the articles which appear on this website.  Mr. Mallon’s legal practice is devoted to helping emerging and start up hedge fund managers successfully launch a hedge fund.  If you are a hedge fund manager who is looking to start a hedge fund, please call Mr. Mallon directly at 415-296-8510.