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Series 27 Example Questions

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Sample Questions


1)

If the selling member fails to deliver securities that are paid for on the settlement date, when would be the earliest that the buyer could conduct a buy-in?

A ) The first business day after settlement
B ) The first business day after settlement
C ) The third business day after settlement
D ) The tenth business day after settlement

See Answer

Answer: The Best Answer is C

Feedback: When a selling member fails to deliver securities that are paid for on the settlement date, the selling member may implement a buy-in as early as the third business day after settlement. A buy-in is when the buying member closes out the position. The buying member must send a notice of the buy-in to the selling member by 12:00 noon, Eastern Time, at least two business days prior to the buy-in. After receiving the buy-in notice, the seller can respond that securities are in transit or with the transfer agent. If this occurs, the selling member is given 7 additional calendar days before the close out can occur. Any loss to the buying member due to the buy-in will be borne by the selling member.


2)

AJ Brokers recently acquired RD Co. AJ Brokers is looking to calculate its net capital to make sure it is in compliance with the SEC's net capital requirements. Which of the following would not be considered a nonallowable asset?

A ) AJ Brokers' real estate holdings
B ) The excess value paid for the acquisition of RD Co. over the fair market value of its assets
C ) AJ Brokers' customer debit balances
D ) AJ Brokers' patent for a new trading technology

See Answer

Answer: The Best Answer is C

Feedback: Real estate and intangible assets, including patents and goodwill, are nonallowable assets, so they will not be included in the calculation of net capital. These assets are considered nonallowable because they are not liquid assets. Net capital is a measure of liquid assets in excess of liabilities. Goodwill is the difference between what was actually paid for a company in an acquisition and the fair market value of the assets of the acquired company.


3)

A carrying firm has just validated an account transfer. The carrying firm should now do all of the following EXCEPT:

A ) Determine whether to take exception to the transfer
B ) Complete the transfer
C ) Send a copy of the transfer instructions and a list of the client’s securities positions and money balances, and the values of the assets in the account
D ) Freeze the account, cancelling all open orders and taking no new orders in the account

See Answer

Answer: The Best Answer is A

Feedback: Once the account transfer is validated, the carrying firm:
• Will send a copy of the transfer instructions and a list of the client’s securities positions and money balances, and the values of the assets in the account.
• Will freeze the account, cancelling all open orders and taking no new orders in the account.
• Has three additional business days to complete the transfer. Completing the transaction includes figuring out if there are any securities that still haven’t been delivered or received, and valuing the securities at the fair market value.
The carrying firm should have determined whether to take exception to the transfer before validating the transfer.


4)

If there is money owed to either party in a transaction after a close-out occurs, when must the money be delivered?

A ) Within ten business days of the close-out procedure
B ) Within one business day of the close-out procedure
C ) Within five business days of the close-out procedure
D ) Within three business days of the close-out procedure

See Answer

Answer: The Best Answer is C

Feedback: Any difference between the current market price and the price on the original confirmation must be paid by the appropriate party within five business days of the date the close-out is executed. If the market price is less than the original agreed-upon price, for example, the purchaser must pay the difference to the seller.


5)

To calculate net capital, starting with tentative net capital, subtract:

A ) Subordinated debt
B ) All of the other choices
C ) Haircuts
D ) Nonallowable assets

See Answer

Answer: The Best Answer is C

Feedback: In general, Net Capital = Tentative Net Capital - Haircuts. Haircuts are the difference between the market value of a security and the security's value as collateral for a loan. Tentative net capital reflects the total liquid assets of a firm before haircuts are withdrawn from security values.


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