Makes Recommendations and Handles Accounts

About 29% of the exam. This is the "do the trade and live with the account" chapter.

Margin in one page

Reg T initial requirement on a long stock buy is 50%. FINRA maintenance is 25% long and 30% short. The account can borrow the rest. A margin call means deposit cash or securities, or the firm sells something. Pattern day traders have a $25,000 minimum equity.

Retirement accounts

IRAs, 401(k)s, and Roths follow contribution and withdrawal rules. A Series 7 recommendation inside an IRA still has to be suitable; the tax wrapper does not make a speculative product safe.

Trading and settlement

Regular-way stock and corporate/muni bonds settle T+1 (trade date plus one business day). Options also settle T+1. Treasuries settle T+1. Know market, limit, and stop orders. A stop becomes a market order when the stop price trades.

Corporate actions

A cash dividend has an ex-date: buy before the ex-date (with T+1, that usually means the business day before) if you want the dividend. Splits change share count and price but not total value. Tender offers are invitations to sell at a stated price; the customer decides.

Discretion and unauthorized trading

Discretion needs written authorization. "Buy me some ABC" without a quantity is not a complete order. Trading without authority is a firing offense and a regulatory one.