Series 7

Section 1 covers Function 1 of the FINRA outline: seeking business for the broker-dealer, about 7% of the exam (9 scored questions). It has two parts: how a firm communicates with the public (Rule 2210 categories, approval and filing, content standards, product-specific rules, telemarketing, gifts, and non-cash compensation), and how new securities reach investors (registration, underwriting, the spread, stabilization, IPO allocation rules, exempt offerings, Rule 144, and the municipal primary market). Expect rule-application questions and at least one spread or Rule 144 calculation.

Every written or electronic message a firm or its people send about the firm's business is a regulated communication. FINRA Rule 2210 sets the categories, approval and filing requirements, and content standards; product-specific rules add to it; SEC books-and-records rules govern retention; and the federal anti-fraud rules apply throughout.

The Three Categories Under Rule 2210

Rule 2210 classifies communications by audience, not by medium: an email, text, web page, or post can fall into any category.

Any written communication distributed

Any written communication distributed

Written communication distributed or

or made available to more than 25

or made available to 25 or fewer retail

made available only to institutional retail investors within any 30- investors within any 30-calendar-day investors. Excludes the firm's internal

calendar-day period. Includes ads,

period.

communications.

websites, form letters, and static social media content.

A retail investor is anyone other than an institutional investor, customer or not. Institutional investors include:

Financial institutions: banks, savings and loan associations, insurance companies, registered investment companies, and registered investment advisers.

Large entities: any person or entity with total assets of at least $50 million.

Government and plans: governmental entities; employee benefit plans with at least 100 participants (not the participants themselves).

Industry members: FINRA member firms and registered persons, and persons acting solely on behalf of any institutional investor.

A communication sent only to institutions loses its institutional status if the firm has reason to believe it will be forwarded to retail investors; it is then treated as a retail communication. Also, a single email is correspondence, but the same email sent to 26 or more retail investors within 30 calendar days is a retail communication.

Approval, Review, Filing, and Retention

Retail communications must be approved by an appropriately qualified registered principal before the earlier of use or filing with FINRA. Exceptions include items that make no financial or investment recommendation and promote no product or service of the firm, and posts in an online interactive electronic forum; these are supervised like correspondence instead. Correspondence and institutional communications need no pre-approval; they are reviewed under the firm's written supervisory procedures (pre- or post-use, often by risk-based sampling).

Communicationtypes:Approval,Filing,Andretention

Type	PrincipalApproval	FINRAFiling	Retention
Retailcommunication	Requiredbeforeuseorfiling	Dependsoncontentandfirm(see	3years withnameof ,
	(limitedexceptions)	filingtable)	approvingprincipalanddate
Correspondence	Notrequired;supervisedand	Notfiled	3years
	reviewedunderfirmprocedures
Institutional	Notrequired;writtenprocedures	Notfiled	3years
communication	forreview
Publicappearance(live	Notrequiredforunscripted	Notfiled(writtenhandoutsor	Recordsofwrittenmaterials
seminar interview , ,	remarks;scriptsandslidesare	invitationsmaybe)	3years
podcast)	communicationsandfollowtheir
	owncategory
Optionsretail	RegisteredOptionsPrincipal	Filed10calendardaysbeforeuseif	3years
communication	(ROP)	usedbeforetheODDisdelivered
		(Rule2220)
Municipal	Municipalsecuritiesprincipal	Nofilingrequirement	Books-and -records rules
advertisement(MSRB	beforefirstuse
G-21)

Timing	WhatIsFiled
Atleast10businessdaysbeforefirst	Newmemberfirms fortheirfirstyearofmembership:retailcommunicationspublishedor ,
use	usedinanypublicmedia(websites newspapers radio television) Also foranyfirm: , , , . ,
	investmentcompanyretailcommunicationswithrankingsorcomparisonsnotgenerally
	publishedorcreatedbythefundoritsaffiliates;retailcommunicationswithbondmutual
	fundvolatilityratings;retailcommunicationsaboutsecurityfutures
Within10businessdaysafterfirst	Retailcommunicationsconcerningregisteredinvestmentcompanies(mutualfunds ETFs , ,
use	closed -end funds UITs) and variable insurance products; public direct participation ,
	programs;registeredCMOs;andregisteredsecuritiesderivedfromorbasedonasingle
	security basket index orcommodity(structuredproducts) , , ,
Notfiled	Correspondence institutionalcommunications communicationspreviouslyfiledand , ,
	unchanged prospectusesfiledwiththeSEC pressreleases andretailcommunicationsthat , , ,
	donotpromoteaspecificsecurityorproduct

FINRA can require changes to a filed piece and can impose a pre-use filing requirement on a firm that departs from the standards. Filing never means FINRA approved the content, and a firm may not imply that it did.

Most retail communications about ordinary stocks and bonds from an established firm are approved but not filed. The two filing timeframes are both "10 business days": before use for new firms and for special items (non- standard rankings, bond fund volatility ratings, security futures), after use for investment company and variable product communications. Options retail communications follow Rule 2220: ROP approval, and filing 10 calendar days before use if used before the ODD is delivered.

Content Standards for All Communications

Every communication must be based on principles of fair dealing and good faith, be fair and balanced, and provide a sound basis for evaluating the facts.

No misleading statements: nothing false, exaggerated, unwarranted, or promissory, and no omission of a material fact or qualification.

Balance and clarity: benefits balanced with risks; risk disclosure prominent, not buried in footnotes; content appropriate for the audience.

Past performance: may not imply that past results will recur.

Comparisons: must disclose material differences (fees, guarantees, liquidity, taxes). The firm's name must appear.

Tax claims: income subject to any tax (state tax, AMT) may not be called tax-free without disclosure.

Recommendations: need a reasonable basis and disclosure of market making, material conflicts, the current price, and availability of supporting information.

Regulators: a firm may state it is a FINRA member (retail websites must link to BrokerCheck) but may not imply regulatory endorsement.

Projections and Predictions

A communication generally may not predict or project performance. Three exceptions:

PermittedException	Condition
Hypotheticalillustrationof	For example compounding or dollar-cost averaging; no prediction for a specific ,
mathematicalprinciples	investment
Investmentanalysistool(Rule2214)	Interactivesimulationofoutcomeswithdisclosureofmethodologyandlimitations
Pricetargetinaresearchreport	Reasonablebasis withthevaluationmethodandriskstothetargetdisclosed ,

Testimonials and Endorsements

For broker-dealers, testimonials in communications are governed by FINRA Rule 2210. (The SEC Marketing Rule governs testimonials and endorsements by investment advisers, not broker-dealers.) A testimonial comes from a customer; an endorsement comes from a non-customer. Under Rule 2210:

If a testimonial concerns a technical aspect of investing, the person giving it must have the knowledge and experience to form a valid opinion.

A retail communication or correspondence containing a testimonial about the firm's investment advice or performance must disclose that the testimonial may not be representative of the experience of other customers, that it is no guarantee of future performance or success, and, if more than $100 in value was paid for it, that it is a paid testimonial.

Performance claims in testimonials meet the same standards as any other claim.

Social Media, Texting, and Electronic Communications

Social media posts meet the same standards as any other communication; treatment depends on the content:

Content	Treatment
Staticcontent	Profiles banners and blog entries that remain posted: a retail communication requiring pre- , ,
	approval
Interactivecontent	Real -time posts comments and chat replies: supervised like correspondence; no pre-approval , , ,
	but post-use review
Third -party content	Notthefirm'scommunicationunlessthefirmadoptsit(sharesorendorsesit)orisentangledin
	preparingit
Paidinfluencers("finfluencers")	Contentafirmpaysfororhelpsprepareisacommunicationofthefirm:itmustmeetRule2210 ,
	besupervisedandretained anddisclosethecompensation ,
Textmessagesandmessaging	Business communications must use channels the firm can capture and retain; "off -channel"
apps	business on personal apps is a books-and -records violation

Discussing business on personal accounts creates regulatory obligations; firms need written policies on permitted platforms, approval, monitoring, and retention.

Record Retention

All business communications must be retained. Under SEC Rule 17a-4 they are kept 3 years, the first 2 in an easily accessible place, either in non-rewriteable, non-erasable (WORM) format or in a system with a complete time-stamped audit trail. Retail communication records include the approving principal, the approval date, and the source of any performance data.

Product-Specific Communications

Investment Companies: SEC Rules 482 and 156, FINRA 2212 and 2213

Fund advertisements are permitted by SEC Rule 482 (the "omitting prospectus" rule). Each must tell investors to consider the fund's objectives, risks, charges, and expenses carefully before investing and how to obtain a prospectus. SEC Rule 156 is anti-fraud guidance on when fund sales literature is misleading (overstating stability, implying past performance will continue, omitting fees).

Standardized performance: any performance shown must include average annual total return for 1-, 5-, and 10-year periods (or since inception if shorter), current to the most recent calendar quarter and net of the maximum sales charge. Non-standardized figures appear only alongside them, and the ad must say how to get month-end performance.

Money market funds: yields use a standardized 7-day formula.

Rankings (Rule 2212): a ranking must come from an independent ranking entity (or be filed 10 business days before use if created by the fund or its affiliates) and identify the entity, category, number of funds in it, time period, and criteria.

Bond fund volatility ratings (Rule 2213): a third-party rating of a bond fund's sensitivity to market conditions; must describe the criteria, state that it is no guarantee, and be filed at least 10 business days before first use.

Variable Insurance Products: Rule 2211

Communications about variable annuities and variable life insurance must identify them as variable contracts and may not imply that the insurer's guarantees extend to separate account performance. Variable life illustrations may use hypothetical gross rates of return up to 12%, provided one of the illustrated rates is 0% gross, and must show values based on both guaranteed and current charges. Surrender charges and tax consequences of withdrawals must be disclosed.

Options: Rule 2220

Every options retail communication (other than completed worksheets) is approved in advance by a Registered Options Principal (ROP); institutional communications are reviewed by an ROP under written procedures, and correspondence is supervised under the firm's procedures.

A retail communication about options that is not preceded or accompanied by the Options Disclosure Document (ODD) must be limited to general information: the options being offered, the underlying interests, the markets on which they trade, and how to obtain an ODD. It may not recommend specific options.

Retail communications about standardized options that are used before delivery of the ODD must be filed with FINRA at least 10 calendar days before use.

The ODD, published by the Options Clearing Corporation, is delivered at or before account approval. Any illustration of options results must show potential losses as well as gains, and all costs.

Collateralized Mortgage Obligations: Rule 2216

Retail communications about CMOs must use the name "collateralized mortgage obligation" for the product, may not compare CMOs with any other investment vehicle such as a bank certificate of deposit, and must disclose that the yield and average life will fluctuate with prepayment rates, and that any agency guarantee does not cover the CMO's market value or yield. Firms must offer retail customers educational material before the sale.

Municipal Advertising: MSRB Rule G-21

Advertisements by dealers about municipal securities fall under MSRB Rule G-21, not Rule 2210. Each advertisement must be approved in writing by a municipal securities principal before first use; there is no filing requirement. G-21 distinguishes product advertisements (about specific securities), professional advertisements (about the firm's services), and new issue advertisements. Ads for municipal fund securities (529 plans) carry fund-style disclosures and standardized performance.

Government Securities and Brokered CDs

Communications about government and agency securities may not imply a government guarantee that does not exist (for example, of fund shares holding Treasuries). For brokered CDs, firms must explain that FDIC insurance covers up to $250,000 per depositor, per bank, per ownership category; that a CD sold before maturity can bring less than par; that the secondary market may be limited; and that any call feature benefits the issuing bank.

Research Reports: Rules 2241 and 2242

Rule 2241 (equity) and Rule 2242 (debt) add conflict rules for research reports.

Separation: analysts may not be supervised by or paid based on investment banking; bankers may not approve research.

No promises: no offering favorable research, ratings, or price targets to win business.

No solicitation roles: analysts may not join banking pitches or road shows.

Quiet periods: a member that acted as manager or co-manager may not publish research on the issuer for 10 calendar days after an IPO and 3 calendar days after a secondary offering.

Disclosures: analyst holdings, firm ownership of 1% or more of the issuer's equity, banking compensation, market making, and the firm's ratings distribution.

Quiet periods bind the managers and co-managers, not all firms, and run in calendar days: 10 after an IPO, 3 after a secondary.

Public Appearances and Seminars

A public appearance is a seminar, webinar, interview, podcast, or other public speaking activity. Unscripted remarks need no pre-approval but are supervised. Related written materials follow their own category: an invitation sent to more than 25 retail investors, and prepared scripts or slides, are retail communications requiring principal approval. Content must be fair and balanced with no exaggerated claims of expertise. A rep who recommends a security must disclose any financial interest, the firm's market making, and other material conflicts. Refreshments and giveaways must be reasonable and not designed to unduly influence attendance.

Telemarketing: FINRA Rule 3230 and the TCPA

Cold calling (unsolicited calls to prospects) is governed by the Telephone Consumer Protection Act (TCPA) and FINRA Rule 3230.

Identification: the caller gives his or her name, the firm's name, a telephone number or address, and that the call is for investment purposes.

National Do-Not-Call Registry: registered numbers may not be called unless an exemption applies.

Firm-specific do-not-call list: honored within a reasonable time not exceeding 30 days; written procedures and training required.

Exemptions from the registry: an established business relationship (a transaction within the prior 18 months, or an inquiry or application within the prior 3 months); the person's prior express written permission; and a personal relationship (family member, friend, or acquaintance). A do-not-call request overrides a business relationship.

Other requirements: caller ID must be transmitted; autodialed or prerecorded calls to cell phones require prior express consent, and unsolicited fax advertisements are prohibited without prior permission or an established business relationship.

Gifts, Entertainment, and Non-Cash Compensation

FINRA Rule 3220 (and MSRB Rule G-20 for municipal business) limits gifts given to any person in relation to the business of that person's employer to $300 per person per year.

Item	Treatment
Gifts	$300perrecipientperyear valuedatcost;recordskept ,
Businessentertainment	Occasionalmealsandeventticketsarenotgiftsifthegiverattendsandtheyarenot
	excessive
Deminimisitems	Logoitemsofnominalvalueanddealtoysareexcluded
Personalgifts	Life-event gifts (wedding birth) not related to the recipient's employer's business are outside ,
	therule

Non-cash compensation rules for fund shares (Rule 2341), variable contracts (Rule 2320), DPPs, and public offerings bar accepting non-cash compensation from an offeror (sponsor, insurer, issuer) except:

Gifts within the $300 limit and occasional entertainment, neither conditioned on sales targets.

Training or education meetings: firm-approved attendance not conditioned on sales, an appropriate location, and the offeror pays only the rep's expenses, not guests'.

Internal sales contests based on total production of all covered products, not one sponsor's.

Referral arrangements: a firm may not pay transaction-based compensation, including referral fees, to unregistered persons. Payments to another member firm are permitted, as are continuing commissions to a retired representative under a prior written contract. A rep may not accept outside referral compensation without the firm's approval.

Retail communication = more than 25 retail investors within

Projections are prohibited except mathematical illustrations,

30 calendar days; correspondence = 25 or fewer;

investment analysis tools, and reasonable-basis research

institutional = only institutional investors ($50 million in

price targets.

assets, banks, insurers, advisers, plans with 100+

Paid testimonials (over $100) must be disclosed; FINRA 2210,

participants).

not the SEC Marketing Rule, governs broker-dealer

Retail communications need principal pre-approval;

testimonials.

correspondence and institutional communications are

Options retail communications: ROP approval; without the

reviewed under firm procedures.

ODD, content is limited to general information and the piece

Filing: new firms 10 business days before use for one year;

is filed 10 calendar days before use.

fund and variable product communications within 10

Telemarketing: 8 a.m. to 9 p.m. local time; firm do-not-call

business days after use; non-standard rankings, bond fund

requests honored within 30 days; business relationship

volatility ratings, and security futures 10 business days

exemption 18 months (transaction) or 3 months (inquiry).

before use.

Gifts $300 per person per year; communications retained 3 years, 2 easily accessible.

New Issues, Underwriting, and Exempt Offerings

The primary market is where issuers sell new securities to raise capital. The Securities Act (the "Paper Act") requires nonexempt public offerings to be registered with the SEC and investors to receive a prospectus. It is a full and fair disclosure law: the SEC does not approve or disapprove securities or vouch for the disclosure, and claiming otherwise is a criminal offense.