Series 7 Trading and Settlement Practice Questions

Correct answer: B. $4,000

Current equity = market value − debit balance = $24,000 − $10,000 = $14,000. The Reg T requirement on the current $24,000 market value is 50% = $12,000. Excess equity credited to SMA = $14,000 − $12,000 = $2,000. Because a new purchase also requires 50% margin, that $2,000 of SMA supports twice its value in new fully marginable purchasing power: $2,000 × 2 = $4,000.

• AA. This is the SMA balance itself ($2,000 of excess equity above the 50% requirement), not the additional buying power it generates. It understates the answer by ignoring Reg T leverage.
• BB. Market appreciation to $24,000 leaves equity of $14,000 against a $12,000 Reg T requirement (50% of $24,000), creating $2,000 of SMA. Because SMA represents fully leveraged buying power, the customer can buy 2x that amount, or $4,000, of additional marginable stock without new cash.
• CC. This matches the original debit balance, not the SMA-driven buying power created by the stock's appreciation. The two numbers are unrelated here.
• DD. This is the account's total current equity ($24,000 value minus $10,000 debit), not the incremental buying power released into SMA by the price increase.

• Source: 12 CFR § 220.12, accessed October 2026

Correct answer: A. Trade date plus 1 business day (T+1)

The SEC shortened the standard settlement cycle for most broker-dealer securities transactions, including regular-way corporate stock trades, from T+2 to T+1, effective May 2024. This reduces counterparty and market risk during the settlement period.

• AA. Correct: regular-way settlement for corporate securities is currently T+1.
• BB. T+2 was the standard prior to the May 2024 rule change; it is now outdated for regular-way trades.
• CC. T+3 was the standard prior to 2017 and is no longer applicable.
• DD. Cash settlement (same-day) is a special, less common settlement type, not the regular-way standard.

• Source: SEC Rule 15c6-1 (settlement cycle), accessed October 2026

Correct answer: D. The order emphasizes execution over price and can experience slippage from price impact, especially when depth is limited and quotes are wide.

Market orders prioritize prompt execution at available prices, not a reference quote. Wide quotes and thin depth can cause price impact.

• AA. Fills occur at available bids and offers, which can differ from the last trade, especially for larger sizes.
• BB. An executed trade is binding; cancellation applies only to unexecuted orders.
• CC. A market order still faces liquidity risk, which shows up as slippage in thin markets.
• DD. Market orders favor execution over price, so thin depth and wide quotes can cause slippage.

• Source: FINRA Investor Education: Order Types, accessed October 2026

Correct answer: B. $1,000

Equity is $40,000 - $31,000 = $9,000. Required maintenance is 25% x $40,000 = $10,000, so the deficit is $1,000.

• AA. This is the current equity, not the shortfall.
• BB. Required equity of $10,000 less actual equity of $9,000 is a $1,000 deficit.
• CC. This applies 25% to the equity rather than to market value.
• DD. This is the required maintenance amount, not the shortfall.

• Source: FINRA Rule 4210, accessed October 2026

Correct answer: B. An odd lot order, which may be handled or executed differently than round lots

An order for fewer shares than the standard round-lot unit (typically 100 shares) is classified as an odd lot. Odd lots are fully permitted but may be handled through different execution mechanics or routing than round lots, particularly for certain order types and market data treatment.

• AA. A round lot is a standard trading unit (typically 100 shares); an order for 25 shares is smaller than that standard unit, so it isn't a round lot order.
• BB. Since 25 shares is less than the normal 100-share round lot for this stock, it is classified as an odd lot order, which may be handled differently (e.g., different execution venues or pricing conventions) than round lot orders.
• CC. There's no such thing as a "mixed lot" requiring special exchange approval; orders below a round lot are simply classified as odd lots, not a distinct approval-required category.
• DD. Odd lot orders are permitted and routinely executed; they are not barred by exchange rules, just potentially handled through different mechanisms than round lots.

• Source: Exam outline: FINRA Series 7 Content Outline, accessed October 2026

Correct answer: A. Matched orders, a manipulative practice

Matched orders involve prearranged, simultaneous or near-simultaneous buy and sell orders in the same security entered by or for colluding parties, with no genuine change in beneficial ownership, for the purpose of creating a false appearance of active trading or influencing price. This is prohibited manipulation under the anti-fraud/anti-manipulation provisions of the Exchange Act and FINRA rules. Legitimate arbitrage involves independent parties responding to a genuine price discrepancy with a real change in ownership and no intent to create a false appearance; a riskless principal transaction is a legitimate, disclosed dealer trade offsetting a customer order at a genuine market price.

• AA. Prearranged, collusive buy/sell orders designed to fake trading activity with no real change in beneficial ownership are the definition of matched orders, a prohibited manipulative practice.
• BB. This describes the opposite of legitimate market making. Prearranged trades with no real change in ownership are manipulative, not genuine liquidity provision.
• CC. Arbitrage is the legitimate exploitation of genuine price discrepancies across markets, unrelated to collusive fake trades in the same security.
• DD. A riskless principal transaction is a legitimate offsetting trade for a firm's own account at a marked-up/down price, not a collusive scheme to fabricate trading volume.

• Source: 15 U.S.C. § 78i, accessed October 2026
• Source: FINRA Rule 5210, accessed October 2026

Correct answer: A. One business day after trade date

Regular-way settlement for most corporate securities, including common stock, is T+1 (one business day after trade date), a standard that took effect industry-wide in May 2024. Before that change, the standard was T+2.

• AA. Correct. Regular-way settlement for equities is currently T+1.
• BB. Incorrect. Same-day (cash) settlement is possible only by special agreement or under cash-trade terms, and it is not the regular-way cycle for listed common stock, which settles one business day after trade date.
• CC. T+2 was the prior standard before the May 2024 shortening to T+1.
• DD. Incorrect. T+3 was the regular-way standard until September 2017, when it was shortened to T+2. It was later shortened again to T+1, so it is not the current cycle.

• Source: SEC Rule 15c6-1 (settlement cycle), accessed October 2026

Correct answer: B. Locate requirement

Regulation SHO's locate requirement obligates a broker-dealer to have reasonable grounds to believe a security can be borrowed and delivered by settlement date before accepting or effecting a short sale order. The uptick rule (Rule 201) restricts short selling only after a security has dropped 10% in one day. The close-out requirement addresses persistent settlement fails, and a threshold security is one with significant, ongoing fails that triggers enhanced close-out obligations.

• AA. The uptick rule (Reg SHO Rule 201) restricts short selling after a stock drops 10% in a day; it has nothing to do with confirming a share can be borrowed before the trade.
• BB. This pre-trade obligation to reasonably believe the security can be borrowed and delivered by settlement is exactly what Reg SHO calls the locate requirement.
• CC. The close-out requirement addresses what a firm must do after a fail to deliver has already occurred, not the pre-trade check before accepting the short sale.
• DD. Threshold security status is a classification triggered by persistent settlement fails in a name, which then invokes mandatory close-out rules. It isn't the locate obligation itself.

• Source: SEC Reg SHO Rule 203 (borrow and delivery), accessed October 2026