Function 2: Opens Accounts After Evaluating Financial Profile (9% Exam Weight)

Series 7 — Function 2: Opens Accounts After Evaluating Financial Profile

Master the Series 7 — Function 2: Opens Accounts After Evaluating Financial Profile function of the Series 7 (General Securities Representative) exam with official regulatory rules, quantitative formulas, and targeted practice drills.

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Authoritative Series 7 Study Notes

Key Concepts & Regulatory Highlights

Covers opening and supervising specialized customer accounts, including FINRA Rule 2360 options account approval and ODD delivery timelines, margin account agreements (credit, hypothecation, loan consent), corporate and partnership resolutions, discretionary accounts (FINRA Rule 3260), and suitability obligations under Reg BI.

📐 Essential Calculation Formulas

Options Agreement Return Deadline

15 Calendar Days after ROP Account Approval

If not returned within 15 days, the customer is restricted to closing transactions only.

Maximum Broker Rehypothecation Limit

140% of Customer's Debit Balance

SEC Rule 15c2-1 limits the value of customer margin securities a broker-dealer may pledge to a bank.

📜 Core Regulatory Rules & Requirements

✓FINRA Rule 2360 Options Account Opening: Account must be approved by a Registered Options Principal (ROP / Series 4 or 9/10); the Options Disclosure Document (ODD) must be delivered at or before approval; the signed options agreement must be returned within 15 calendar days of approval.

✓Margin Agreements (SEC Rule 15c2-1): The Credit Agreement (discloses interest terms) and Hypothecation Agreement (pledges securities as collateral, allowing rehypothecation up to 140% of debit balance) are mandatory; the Loan Consent Agreement (allows lending shares for short sales) is optional.

✓Corporate Account Documentation: A corporate cash account requires a Corporate Resolution naming authorized traders; a corporate margin or options account additionally requires the Corporate Charter/Bylaws to confirm borrowing and derivatives authority.

✓Fiduciary & Custodial Restrictions: Estate executors, trustees, and UTMA/UGMA custodians cannot trade on margin or write uncovered options unless explicitly authorized by the trust instrument or court order.

💡 High-Yield Exam Watchouts

•A Limited Power of Attorney allows a third party to enter buy and sell orders only; a Full Power of Attorney additionally allows requesting check disbursements and asset withdrawals.
•For an uncovered (naked) short options account, the firm must provide a special uncovered short option risk disclosure statement and enforce higher minimum equity standards.

Why Study Series 7 — Function 2: Opens Accounts After Evaluating Financial Profile?

The Series 7 — Function 2: Opens Accounts After Evaluating Financial Profile portion of the General Securities Representative (Series 7) exam is critical for passing on your first attempt. Understanding these concepts builds both test-day precision and practical regulatory fluency.

Our practice questions and formulas are engineered to mirror the official Series 7 blueprint and statutory complexity you'll encounter at Prometric.

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