Series 7 Test

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History

The General Securities Representative Qualification Examination, more commonly known as the Series 7, was created in 1974[1] by the National Association of Securities Dealers (NASD) to provide an industry-wide qualification examination for general securities representatives, more commonly known as stockbrokers.[2] The examination received several major revisions in the following decades, including in 1986, 1995, and 2011.[2][3]

The Series 7 examination qualifies individuals for registration with self-regulatory organizations to trade corporate stocks and bonds; rights; warrants; real estate investment trusts (REITs); collateralized mortgage obligations (CMOs); municipal securities; options-equity, index, and foreign currency; investment company products and variable contracts; direct participation programs; and exchange traded funds (ETFs).

In the major 2011 revision, the Series 7 examination was revised to narrow its scope.[4] One major change lies in the area of municipal securities. Prior to the 2011 revision, test takers who passed the Series 7 examination were able to "trade municipal securities, structure municipal securities underwritings and perform certain other activities involving municipal securities."[5] Following the 2011 revision, test takers who pass the Series 7 examination are "qualified to engage only in municipal securities sales to, and purchases from customers."[5] Individuals who wish to become qualified to perform all of the municipal securities actions previously permitted by passing the Series 7 examination must now also pass the Series 52 examination, titled the "Municipal Securities Representative Exam."[5]

Between major revisions, the Series 7 examination is continually updated and tweaked by FINRA, which reports that the bank of test questions "changes constantly" to reflect additions and changes to industry rules and regulations as well as the introductions of new products and changes in industry practice.[4]

Function of the Test

Series 7 Study Guide

The Series 7 is an assessment of the competency of entry-level general securities representatives. It acts as a safeguard to ensure that the investing public is not harmed by general securities representatives who lack the knowledge and competence necessary to perform their jobs.[4]

Candidates for the Series 7 examination must be sponsored by a FINRA member firm.

Upon passing the examination, candidates are eligible to become Registered Representatives—in other words, licensed stockbrokers.[6]

Test Administration

Series 7 Flashcards

The Series 7 is administered by computer. Test takers have six hours to complete the examination, which totals 250 multiple choice questions. The test is administered in two parts of 125 questions each. Questions are drawn randomly from a bank of test questions, so no two candidates' examinations are identical.[4] The questions on the Series 7 examination reflect five "major job functions" of a general securities representative. Some test questions require calculations. Scratch paper and calculators are provided by the test administrator. Only the calculator provided by the test administrator may be used during the examination.[4]

The Series 7 examination is administered on a regular basis at Prometric Testing Centers and Pearson Professional Centers.[7][8] It costs $290 to register for the examination.[9]

Candidates who fail the Series 7 examination must wait 30 days before retaking the exam. Individuals who fail three or more times must wait 180 days between exam dates.[10]

Candidates who require special accommodations to take an examination may request any appropriate form of accommodation, such as extra time to complete the examination, a reader, or a large print examination booklet. Requests must be made using the FINRA Special Accommodations Eligibility Questionnaire and Special Accommodations Verification Request Form. FINRA makes decisions regarding accommodations on a case by case basis based on whatever documentation is submitted by the candidate.[11][12]

Test Format

Sections of the Series 7 Test[13]
Major Job Functions Percentage of
Test Questions
Number of
Questions
F1: Seeks Business for the Broker-Dealer through Customers and
Potential Customers
27% 68
F2: Evaluates Customers' Other Security Holdings, Financial Situation
and Needs, Financial Status, Tax Status, and Investment Objectives
11% 27
F3: Opens Accounts, Transfers Assets, and Maintains Appropriate
Account Records
11% 27
F4: Provides Customers with Information on Investments and Makes
Suitable Recommendations
28% 70
F5: Obtains and Verifies Customer's Purchase and Sales Instructions,
Enters Orders, and Follows Up
23% 58
TOTAL 100% 250

Test Structure

The Series 7 Exam is made up of 250 multiple choice questions divided into two, 125 question sections. The test taker is allowed three hours to complete each section. There are five major content topics that are covered in the Series 7 Exam that tests the knowledge of five job functions: Seeks Business for the Broker-Dealer through Customers and Potential Customers; Evaluates Customers' Other Security Holdings, Financial Situation and Needs, Financial Status, Tax Status, and Investment Objectives; Opens Accounts, Transfers Assets, and Maintains Appropriate Account Records; Provides Customers with Information on Investments and makes Suitable Recommendations; Obtains and Verifies Customer's Purchase and Sales Instructions, Enters Orders, and Follows Up.

Test Environment

The Series 7 Exam is computer based. There is a tutorial at the beginning of the exam, which doesn't count against the six hours provided to complete the test. Scratch paper and calculators are allowed, but will be provided by the test administrator and must be returned at the end of the testing period. Although each test-taker will have an equally challenging exam, none of them are the same. This is to ensure there will be no cheating.

Test Content

  • Sample Series 7 Questions:
  1. A stock’s support level is which of the following?
    A. The average trading price of the security.
    B. The lower price of the security’s recent trading range.
    C. The upper price of the security’s trading range.
    D. The price at which fairly priced call options will be profitable.
  2. The Federal Reserve Board administers monetary policy by controlling the money supply with each of the following tools EXCEPT:
    A. Participating in open market operations
    B. Changing the discount rate
    C. Changing the reserve requirements
    D. Changing the prime rate
  3. The following financial instruments DO NOT trade in the secondary market:
    I. Repos
    II. Fed Funds
    III. ADRs
    IV. Private Placements
    A. I, II, and IV
    B. II, III, and IV
    C. I and II
    D. II and IV
  4. When an investor buys common stock that increases in value, how is the result to be categorized for tax purposes?
    A. Capital gain
    B. Ordinary income
    C. Appreciation
    D. Passive income
  5. Which of the following is NOT important to the marketability of a specific municipal bond?
    A. The coupon rate
    B. The accrued interest
    C. The dollar price
    D. The name of the issuer
  6. If ABC has 4,000,000 shares currently outstanding, what will the holder of 20,000 shares receive if ABC plans to issue an additional 200,000 shares through a rights offering?
    A. 2,000 rights to buy 1,000 shares
    B. 2,000 rights to buy 400 shares
    C. 20,000 rights to buy 1,000 shares
    D. 20,000 rights to buy 400 shares

More free Series 7 practice test questions.

Scoring

Because every candidate takes a slightly different form of the Series 7 examination, FINRA does not use raw scores to determine whether a candidate passes or fails. In a statistical equating procedure, raw scores are adjusted upward or downward based on the difficulty of an individual candidates' examination. The standardized passing score is 72%.[4]

Immediately after completing the examination, candidates receive a score report indicating pass/fail status along with a score profile detailing candidates' performance on each of the major job functions addressed in the examination. This report enables candidates to focus future professional development efforts on those job functions which the candidate is weaker in.[4]

A variety of sources claim that only about 65–70% of candidates who take the Series 7 examination pass it,[14][15][16][17] but FINRA does not appear to publish such statistics officially.

Answers to Sample Questions

1:B; 2:D; 3:A; 4:C; 5:B; 6:C;

References

  1. ^ FINRA: Implementation Dates of Qualification Exams March 2 2014
  2. ^ a b Federal Register Volume 60, Number 39 March 2 2014
  3. ^ MSRB Notice 2011-62: Changes to Registration of Municipal Securities Professional and Reminder of Supervisory Obligations of Principals March 2 2014
  4. ^ a b c d e f g FINRA General Securities Representative Qualification Examination (Series 7) Content Outline March 2 2014
  5. ^ a b c FINRA: Qualifications Frequently Asked Questions March 2 2014
  6. ^ FINRA Registration and Examination Requirements March 2 2014
  7. ^ FINRA Test Center Locations March 2 2014
  8. ^ FINRA: How to Schedule an Exam or Continuing Education (CE) Appointment March 2 2014
  9. ^ FINRA: FINRA Administered Qualification Examinations March 2 2014
  10. ^ 1070: Qualification Examinations and Waiver of Requirements March 2 2014
  11. ^ FINRA: FINRA Special Accommodations March 2 2013
  12. ^ FINRA: Arrangements for Candidates with Disabilities March 2 2014
  13. ^ Series 7 Content Outline 13 June 2014
  14. ^ Agent Broker Training Center: How to Pass Series 7 Exam March 2 2014
  15. ^ Hedge Fund Law Blog: Series 7 Exam Overview March 2 2014
  16. ^ Laws.com: Guide to the Series 7 March 2 2014
  17. ^ HedgeFundBlogger: Series 7 Guide March 2 2014