STC Series 7 Chapter 3 Test Exam
2025 With 100% Correct Answers
A registered representative invites 40 clients to an investing seminar, the sales script that's used
for the presentation is considered:
A. An interactive electronic forum
B. Retail communication
C. A public appearance
D. Correspondence - CORRECT ANSWER✔✔B. Retail communication
Since the communication is being delivered to 40 total investors (and makes no reference to the
investors being institutional), the sales script is considered retail communication.
Correspondence is defined as any written or electronic message that a member firm distributes
or makes available to 25 or fewer retail investors within a 30-calendar-day period.
Communication that's delivered to more than 25 investors is considered retail communication.
FINRA defines retail investors as existing and/or prospective clients.
Which of the following actions is a firm permitted to perform when it publishes a research
report?
A. Send the report to the subject company for approval and editing.
B. Send a suggested target price for the company's stock to the subject company.
C. Verify factual information with the subject company.
D. Own more than 1% of the subject company's stock without disclosure. - CORRECT
ANSWER✔✔C. Verify factual information with the subject company
To avoid conflicts, there are significant restrictions on firms that publish research reports on
companies. These restrictions include sending the report to the subject company for editing or
approval, sending a suggested target price for the company's stock to the subject company,
owning 1% of more of the outstanding shares, or making a market in the subject company's
stock without disclosure. However, firms are permitted to verify factual information with subject
companies.
,Drysdale Securities has sent a third-party research report on Clinkscale Corporation to clients.
Which of the following items is NOT a required disclosure?
A. Whether Drysdale makes a market in Clinkscale
B. A three-year price chart covering Drysdale recommendations
C. Whether Drysdale managed or comanaged an offering
D. Whether Drysdale owns 1% or more of outstanding shares - CORRECT ANSWER✔✔B. A
three-year price chart covering Drysdale recommendations
Third-party research has been prepared at the request of the brokerage firm (Drysdale
Securities) and is distinct from independent third-party research. Third-party research must
contain the disclosures that would apply had the member (Drysdale Securities) prepared the
report. However, a price chart is not included within these required disclosures. Third-party
research must include the following disclosures.
Whether the broker-dealer received compensation from the subject company within the
preceding 12 months, or expects to receive compensation in the upcoming 3 months, for
investment banking services related to the subject company
Whether the broker-dealer makes a market in the subject company
Whether the broker-dealer owns 1% or more of the equities in the subject company
Any other material conflicts of interest
Independent third-party research has not been prepared at the request of the broker-dealer.
Had this been the case, disclosures of Drysdale's activities in Clinkscale would not have been
required.
Which TWO of the following choices must a principal approve prior to use?
I. An advertisement concerning the appointment of new managing directors
II. An advertisement promoting a new type of CMO
III. An advertisement regarding covered call writing
IV. An email from an RR to a client concerning a security in her account
A. I and III
, B. I and IV
C. II and III
D. II and IV - CORRECT ANSWER✔✔C. II and III
All retail communications concerning options and CMOs must be approved before initial use by
a principal of the member firm. Advertising concerning a change in the firm's personnel does
not need to be approved. Correspondence, which is any written or electronic communication,
(i.e., email) needs to be reviewed by the firm but does not require prior principal approval.
Regarding communications, which of the following statements is TRUE concerning the
responsibilities of a principal of a broker-dealer?
A. A principal must approve retail communications prior to use.
B. A principal must approve all institutional communications prior to use.
C. A principal must approve all correspondence prior to use.
D. A principal must approve all retail communications and correspondence prior to use. -
CORRECT ANSWER✔✔A. A principal must approve retail communications prior to use.
A principal must approve retail communications prior to use. However, institutional
communications and correspondence are subject to review and supervision by a principal, but
not pre-approval.
When determining whether a CMO is suitable, an RR must offer to a client all of the following
information, EXCEPT a:
A. Glossary of terms
B. Discussion on how changing interest rates may affect the prepayment rates
C. Discussion on how changing currency rates may affect the value of the securities
D. Discussion on the relationship between mortgage loans and mortgage securities - CORRECT
ANSWER✔✔C. Discussion on how changing currency rates may affect the value of the securities
Broker-dealers must offer customers educational material about the features of CMOs. This
material must include:
2025 With 100% Correct Answers
A registered representative invites 40 clients to an investing seminar, the sales script that's used
for the presentation is considered:
A. An interactive electronic forum
B. Retail communication
C. A public appearance
D. Correspondence - CORRECT ANSWER✔✔B. Retail communication
Since the communication is being delivered to 40 total investors (and makes no reference to the
investors being institutional), the sales script is considered retail communication.
Correspondence is defined as any written or electronic message that a member firm distributes
or makes available to 25 or fewer retail investors within a 30-calendar-day period.
Communication that's delivered to more than 25 investors is considered retail communication.
FINRA defines retail investors as existing and/or prospective clients.
Which of the following actions is a firm permitted to perform when it publishes a research
report?
A. Send the report to the subject company for approval and editing.
B. Send a suggested target price for the company's stock to the subject company.
C. Verify factual information with the subject company.
D. Own more than 1% of the subject company's stock without disclosure. - CORRECT
ANSWER✔✔C. Verify factual information with the subject company
To avoid conflicts, there are significant restrictions on firms that publish research reports on
companies. These restrictions include sending the report to the subject company for editing or
approval, sending a suggested target price for the company's stock to the subject company,
owning 1% of more of the outstanding shares, or making a market in the subject company's
stock without disclosure. However, firms are permitted to verify factual information with subject
companies.
,Drysdale Securities has sent a third-party research report on Clinkscale Corporation to clients.
Which of the following items is NOT a required disclosure?
A. Whether Drysdale makes a market in Clinkscale
B. A three-year price chart covering Drysdale recommendations
C. Whether Drysdale managed or comanaged an offering
D. Whether Drysdale owns 1% or more of outstanding shares - CORRECT ANSWER✔✔B. A
three-year price chart covering Drysdale recommendations
Third-party research has been prepared at the request of the brokerage firm (Drysdale
Securities) and is distinct from independent third-party research. Third-party research must
contain the disclosures that would apply had the member (Drysdale Securities) prepared the
report. However, a price chart is not included within these required disclosures. Third-party
research must include the following disclosures.
Whether the broker-dealer received compensation from the subject company within the
preceding 12 months, or expects to receive compensation in the upcoming 3 months, for
investment banking services related to the subject company
Whether the broker-dealer makes a market in the subject company
Whether the broker-dealer owns 1% or more of the equities in the subject company
Any other material conflicts of interest
Independent third-party research has not been prepared at the request of the broker-dealer.
Had this been the case, disclosures of Drysdale's activities in Clinkscale would not have been
required.
Which TWO of the following choices must a principal approve prior to use?
I. An advertisement concerning the appointment of new managing directors
II. An advertisement promoting a new type of CMO
III. An advertisement regarding covered call writing
IV. An email from an RR to a client concerning a security in her account
A. I and III
, B. I and IV
C. II and III
D. II and IV - CORRECT ANSWER✔✔C. II and III
All retail communications concerning options and CMOs must be approved before initial use by
a principal of the member firm. Advertising concerning a change in the firm's personnel does
not need to be approved. Correspondence, which is any written or electronic communication,
(i.e., email) needs to be reviewed by the firm but does not require prior principal approval.
Regarding communications, which of the following statements is TRUE concerning the
responsibilities of a principal of a broker-dealer?
A. A principal must approve retail communications prior to use.
B. A principal must approve all institutional communications prior to use.
C. A principal must approve all correspondence prior to use.
D. A principal must approve all retail communications and correspondence prior to use. -
CORRECT ANSWER✔✔A. A principal must approve retail communications prior to use.
A principal must approve retail communications prior to use. However, institutional
communications and correspondence are subject to review and supervision by a principal, but
not pre-approval.
When determining whether a CMO is suitable, an RR must offer to a client all of the following
information, EXCEPT a:
A. Glossary of terms
B. Discussion on how changing interest rates may affect the prepayment rates
C. Discussion on how changing currency rates may affect the value of the securities
D. Discussion on the relationship between mortgage loans and mortgage securities - CORRECT
ANSWER✔✔C. Discussion on how changing currency rates may affect the value of the securities
Broker-dealers must offer customers educational material about the features of CMOs. This
material must include:
