STC Series 7 Chapter 14 Test Exam
2025 With 100% Correct Answers
A customer is NOT required to obtain approval to trade penny stocks in his account if the:
I. Trade is solicited
II. Trade is unsolicited
III. Account is established
IV.Account is new
AI and III only
BI and IV only
II and III only
DII and IV only - CORRECT ANSWER✔✔It is necessary to read this question carefully since it is
asking about when a customers is NOT required to obtain approval to trade penny stocks in his
account. The approval to trade penny stocks in a customer's account is NOT required if the
account has been in existence for more than one year or if all transactions in penny stocks are
unsolicited (non-recommended). Penny stocks are defined as non-listed equity securities that
are priced at less than $5.00 per share.
Which of the following is NOT acceptable under a soft-dollar relationship?
A. Providing in-house research
B. Providing subscriptions to industry trade publications
C. Providing third-party research
D. Providing software for accounting services - CORRECT ANSWER✔✔D. Providing software for
accounting services
A soft-dollar arrangement is a practice in which an investment adviser pays for research or other
services from a broker-dealer with commission dollars rather than buying these services
separately. Providing software for accounting services would not assist the client in making an
investment decision.
,Which of the following situations BEST describes acting in a net basis capacity?
A. Prior to filling a customer's buy order, a dealer buys stock into inventory and resells it to the
client at the same price
B. Prior to filling a customer's buy order, a dealer buys stock into inventory and resells it to the
customer at a higher price
C. A dealer sells stock from inventory to a client and charges a markup
D. A broker-dealer sells stock to a client at the same price, without earning a markup or
commission - CORRECT ANSWER✔✔B. Prior to filling a customer's buy order, a dealer buys
stock into inventory and resells it to the customer at a higher price
In a net basis transaction, a dealer holding a customer order to buy, acquires the stock on a
principal basis and executes the customer's order at a different price than the dealer's
acquisition price. If the dealer executes the transaction at the same price and charges the
customer a markup, the capacity is disclosed on a riskless principal basis. The markup in a
riskless principal transaction must be disclosed. A dealer selling from inventory is acting in a
principal capacity. Selling stock without a markup or commission is unlikely to occur. A broker-
dealer is entitled to receive compensation for executing customer orders.
If a temporary hold has been placed on a customer's account, the firm:
A. Must provide notice to the account owner and the trusted contact person
B. Must provide notice only to the account owner
C. Must provide notice only to the trusted contact person
D. Must provide notice to FINRA - CORRECT ANSWER✔✔A. Must provide notice to the account
owner and the trusted contact person
If a temporary hold is placed on a customer's account (i.e., for a specified adult), the firm is
required to notify both the account owner and the trusted contact person by no later than two
business days after the hold has been placed.
A broker who transacts an order for a customer must send a confirmation disclosing all of the
following information, EXCEPT:
A. The yield computation employed
, B. If it acted as an agent for the customer and as an agent for another person
C. If it acted as a principal for its own account
D. If it acted as principal and that it prepares research on the security - CORRECT ANSWER✔✔D.
If it acted as principal and that it prepares research on the security
If the broker-dealer acted as an agent for both the customer and for a third party, it must
disclose this fact. A broker is not required to disclose on a confirmation whether it prepares
research on the security. The yield computation employed (YTM or YTC) must be disclosed to
the client.
Which of the following characteristics is NOT associated with a variable annuity?
A. Market risk
B. Call risk
C. Mortality and expense charges
D. A surrender charge - CORRECT ANSWER✔✔B. Call risk
Call risk is associated with fixed-income securities, but not variable annuities. Since many
variable annuity separate accounts are heavily weighted with equities, market risk is assumes by
annuitants. Mortality and expense charges are reflected in the expense ratio of a variable
annuity and surrender charges are assessed for many (variable) annuities at the time of early
redemption.
All of the following information must be disclosed to a customer on a confirmation, EXCEPT:
A. The security traded, the price, and the number of shares
B. Whether the firm acted as principal or agent
C. The commission if the firm acted as an agent
D. Whether the order was solicited or unsolicited - CORRECT ANSWER✔✔D. Whether the order
was solicited or unsolicited
The customer confirmation must disclose the date and time of the transaction (or the fact that
the time of the transaction will be furnished upon written request to such customer), the
identity, price, and number of shares or units of such security purchased or sold by such
customer; and whether the broker or dealer is acting as agent for the customer, as agent for
2025 With 100% Correct Answers
A customer is NOT required to obtain approval to trade penny stocks in his account if the:
I. Trade is solicited
II. Trade is unsolicited
III. Account is established
IV.Account is new
AI and III only
BI and IV only
II and III only
DII and IV only - CORRECT ANSWER✔✔It is necessary to read this question carefully since it is
asking about when a customers is NOT required to obtain approval to trade penny stocks in his
account. The approval to trade penny stocks in a customer's account is NOT required if the
account has been in existence for more than one year or if all transactions in penny stocks are
unsolicited (non-recommended). Penny stocks are defined as non-listed equity securities that
are priced at less than $5.00 per share.
Which of the following is NOT acceptable under a soft-dollar relationship?
A. Providing in-house research
B. Providing subscriptions to industry trade publications
C. Providing third-party research
D. Providing software for accounting services - CORRECT ANSWER✔✔D. Providing software for
accounting services
A soft-dollar arrangement is a practice in which an investment adviser pays for research or other
services from a broker-dealer with commission dollars rather than buying these services
separately. Providing software for accounting services would not assist the client in making an
investment decision.
,Which of the following situations BEST describes acting in a net basis capacity?
A. Prior to filling a customer's buy order, a dealer buys stock into inventory and resells it to the
client at the same price
B. Prior to filling a customer's buy order, a dealer buys stock into inventory and resells it to the
customer at a higher price
C. A dealer sells stock from inventory to a client and charges a markup
D. A broker-dealer sells stock to a client at the same price, without earning a markup or
commission - CORRECT ANSWER✔✔B. Prior to filling a customer's buy order, a dealer buys
stock into inventory and resells it to the customer at a higher price
In a net basis transaction, a dealer holding a customer order to buy, acquires the stock on a
principal basis and executes the customer's order at a different price than the dealer's
acquisition price. If the dealer executes the transaction at the same price and charges the
customer a markup, the capacity is disclosed on a riskless principal basis. The markup in a
riskless principal transaction must be disclosed. A dealer selling from inventory is acting in a
principal capacity. Selling stock without a markup or commission is unlikely to occur. A broker-
dealer is entitled to receive compensation for executing customer orders.
If a temporary hold has been placed on a customer's account, the firm:
A. Must provide notice to the account owner and the trusted contact person
B. Must provide notice only to the account owner
C. Must provide notice only to the trusted contact person
D. Must provide notice to FINRA - CORRECT ANSWER✔✔A. Must provide notice to the account
owner and the trusted contact person
If a temporary hold is placed on a customer's account (i.e., for a specified adult), the firm is
required to notify both the account owner and the trusted contact person by no later than two
business days after the hold has been placed.
A broker who transacts an order for a customer must send a confirmation disclosing all of the
following information, EXCEPT:
A. The yield computation employed
, B. If it acted as an agent for the customer and as an agent for another person
C. If it acted as a principal for its own account
D. If it acted as principal and that it prepares research on the security - CORRECT ANSWER✔✔D.
If it acted as principal and that it prepares research on the security
If the broker-dealer acted as an agent for both the customer and for a third party, it must
disclose this fact. A broker is not required to disclose on a confirmation whether it prepares
research on the security. The yield computation employed (YTM or YTC) must be disclosed to
the client.
Which of the following characteristics is NOT associated with a variable annuity?
A. Market risk
B. Call risk
C. Mortality and expense charges
D. A surrender charge - CORRECT ANSWER✔✔B. Call risk
Call risk is associated with fixed-income securities, but not variable annuities. Since many
variable annuity separate accounts are heavily weighted with equities, market risk is assumes by
annuitants. Mortality and expense charges are reflected in the expense ratio of a variable
annuity and surrender charges are assessed for many (variable) annuities at the time of early
redemption.
All of the following information must be disclosed to a customer on a confirmation, EXCEPT:
A. The security traded, the price, and the number of shares
B. Whether the firm acted as principal or agent
C. The commission if the firm acted as an agent
D. Whether the order was solicited or unsolicited - CORRECT ANSWER✔✔D. Whether the order
was solicited or unsolicited
The customer confirmation must disclose the date and time of the transaction (or the fact that
the time of the transaction will be furnished upon written request to such customer), the
identity, price, and number of shares or units of such security purchased or sold by such
customer; and whether the broker or dealer is acting as agent for the customer, as agent for
