FINRA Series 27 Practice Test & Mock Exam

Series 27 rewards candidates who can think like a FINOP, connect operational workflow to financial controls, and spot where books and records, reporting, or custody discipline breaks down. If you are searching for Series 27 sample questions, a practice test, mock exam, or simulator, this is the main Securities Prep page to start on web and continue on iOS or Android with the same account. This page includes 24 sample questions with detailed explanations so you can try the exam style before opening the full app question bank.

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What this Series 27 practice page gives you

• a direct route into the Securities Prep simulator for Series 27
• 24 sample questions with detailed explanations across the main Series 27 FINOP buckets
• targeted practice around operations controls, books and records, capital, custody, and reporting workflow
• detailed explanations that show why the strongest FINOP response is the most defensible
• a clear free-preview path before you subscribe
• the same subscription across web and mobile

Series 27 exam snapshot

• Provider: FINRA
• Exam: Financial and Operations Principal
• Practice reference: 145 practice questions in 225 minutes
• Registration context: FINOP-focused qualification tied to operational and financial control discipline

Topic coverage for Series 27 practice

• Books, records, and reporting: recordkeeping, reporting obligations, and reconciliation discipline
• Capital and customer protection: financial controls, capital implications, custody, and customer-protection workflow
• Operational escalation: identifying breaks in control and choosing the correct remedial or reporting step

What Series 27 is really testing

Series 27 is primarily an operations-and-financial-responsibility exam:

• classifying the issue quickly into books and records, reporting, customer protection, net capital, or cash and funding workflow
• recognizing when a break affects customer assets, capital, or both
• understanding that unresolved differences, unsupported balances, or weak reconciliations are not clerical problems but regulatory problems
• choosing the conservative response when the facts are incomplete or financially risky
• pairing every fix with escalation, reconciliation, and a supportable audit trail

Common question styles

• What should the FINOP do next?: reconcile, charge or deduct, amend, notify, restrict, escalate, or document
• What bucket is this issue in?: FOCUS reporting, books and records, reserve computation, possession or control, net capital, or funding
• What changed the answer?: age of the item, asset quality, customer-protection exposure, filing timing, or capital effect
• What makes the response defensible?: timely research, conservative treatment, approval evidence, and retained support
• What is the real risk?: misstated financials, misuse of customer assets, capital deficiency, or an unresolved operational break

High-yield pitfalls

• treating unresolved breaks or suspense items as small housekeeping issues
• fixing the operational symptom but ignoring the net-capital or customer-protection consequence
• choosing an optimistic balance-sheet treatment when the safer regulatory answer is more conservative
• overlooking the need to amend, notify, or escalate when reporting is incomplete or inaccurate
• forgetting that reserve and possession-or-control issues require immediate protective thinking
• documenting the correction poorly even after taking the right operational action

How Series 27 differs from similar routes

How to use the Series 27 simulator efficiently

1. Start with books-and-records and reporting drills so the financial-control workflow becomes easier to recognize.
2. Review every miss until you can explain the control gap, the reporting consequence, and the right next step.
3. Move into mixed sets once you can shift between capital, custody, and operational scenarios without slowing down.
4. Finish with timed runs so the long-session pace feels steady.

Free preview vs premium

• Free preview: 24 public sample questions on this page plus the web app entry so you can validate the question style and explanation depth.
• Premium: the full Series 27 practice bank, focused drills, mixed sets, timed mock exams, detailed explanations, and progress tracking across web and mobile.

Free samples and full bank

• Live now: this exact practice route is available in Securities Prep on web, iOS, and Android.
• On-page sample set: this page includes 24 public sample questions from the current practice coverage.
• Full app: open the Securities Prep web app or mobile app for broader timed coverage.

Good next pages after Series 27

• Series 28 if you are comparing the carrying-firm and introducing-firm FINOP routes
• Series 14 if the real target is compliance-officer qualification rather than FINOP responsibility
• Series 99 if you want the operations-professional route beside the FINOP path
• FINRA if you want the full principal, FINOP, and operations route map first

Free review resources

Use these free SecuritiesMastery.com resources for concept review, then return to this page when you are ready to practice in Securities Prep.

• Series 27 Cheat Sheet
• Series 27 Study Guide

Focused sample questions

Use these focused Series 27 sample-question pages when you want to isolate one official topic area before returning to the mixed simulator.

• Financial Reporting
• Operations and Records
• Customer Protection
• Net Capital
• Funding and Cash Management
• Free Series 27 Full-Length Practice Exam

24 Series 27 sample questions with detailed explanations

These sample questions cover multiple blueprint areas for Series 27. Use them to check your readiness here, then move into the full Securities Prep question bank for broader timed coverage.

Question 1

Topic: Function 1 - Financial Reporting

A broker-dealer files its FOCUS Report each month through FINRA’s electronic filing system. The FINOP learns that the filing is submitted by an outside accounting consultant using a shared “FINOP” username/password known by multiple people. The firm does not retain the system-generated filing confirmation or a screenshot/PDF of the submitted report; the only “proof” is an email from the consultant saying it was filed.

Which is the primary operational control concern/red flag in this process?

• A. Weak access control and inadequate retention of submission evidence for regulatory filings
• B. Immediate net capital deficiency under SEC Rule 15c3-1
• C. Increased risk of a customer reserve underfunding under SEC Rule 15c3-3
• D. Inability to fund daily settlement obligations due to liquidity strain

Best answer: A

Explanation: Electronic regulatory submissions require basic controls over who can file, how changes are authorized, and how the firm proves the filing occurred. Shared credentials defeat accountability, and failing to retain the system confirmation and a copy of what was transmitted creates a record-integrity gap. A FINOP should ensure controlled access, review/approval, and durable retention of filing evidence.

Question 2

Topic: Function 4 - Net Capital

In the context of SEC Net Capital Rule 15c3-1 operational charges, which statement best explains why aged fails to deliver/receive can result in net capital deductions (often described as “fail charges”) and increased supervisory attention?

• A. They are treated like market risk and addressed only through higher position haircuts.
• B. They represent unsecured settlement exposures that may be treated as non-allowable/operational deductions as they age, and they can signal clearance/recordkeeping control breakdowns.
• C. They are eliminated from net capital concerns if the counterparty is a regulated broker-dealer.
• D. They are primarily an income statement issue because they increase commissions and fees expense.

Best answer: B

Explanation: Aged fails indicate that securities or cash have not been exchanged as expected, creating an unsecured exposure and operational uncertainty. As fails age, they can require operational deductions (fail charges) or be treated as non-allowable items that reduce net capital. Regulators also view persistent aged fails as a red flag for weak settlement processing, reconciliations, and supervisory controls.

Question 3

Topic: Function 4 - Net Capital

A FINOP is reviewing a broker-dealer’s month-end liabilities to determine Aggregate Indebtedness (AI) under SEC Rule 15c3-1. The firm’s balance sheet includes accounts payable to vendors, accrued payroll and payroll taxes, a repurchase agreement (repo) payable, and customer free credit balances.

Which statement about what is included in AI is INCORRECT?

• A. Accounts payable to vendors are included in Aggregate Indebtedness
• B. Repo payables are included in Aggregate Indebtedness
• C. Customer free credit balances are excluded from Aggregate Indebtedness
• D. Accrued expenses such as payroll and payroll taxes are included in Aggregate Indebtedness

Best answer: C

Explanation: Aggregate Indebtedness generally reflects a broker-dealer’s unsecured liabilities and similar obligations. Common contributors include accounts payable, accrued expenses, and securities financing obligations such as repos. Customer free credit balances are also firm liabilities, so treating them as excluded is incorrect.

Question 4

Topic: Function 1 - Financial Reporting

On April 15, the broker-dealer’s independent public accountant notifies the FINOP that it is resigning immediately and will not stand for reappointment, citing unresolved concerns about the firm’s revenue recognition documentation and access to supporting records. The audit is still in progress.

Which action by the FINOP best aligns with the control objective of regulatory notifications related to auditor changes?

• A. Rely on the clearing firm’s FINOP to notify regulators because the broker-dealer is introducing
• B. Disclose the resignation only in the next annual audited financial statements and related opinion
• C. Wait to notify regulators until a replacement accountant is engaged and the audit restarts
• D. Promptly notify FINRA and the SEC in writing of the resignation and circumstances, and obtain the required former accountant response letter for the notification file

Best answer: D

Explanation: A change in an independent public accountant—especially a resignation tied to documentation and access concerns—is a reportable event that should be escalated promptly to regulators. The control objective is to provide timely transparency into potential financial reporting or audit-scope issues so regulators can assess the firm’s financial reporting integrity and customer protection risks. The FINOP should also ensure required supporting correspondence is obtained and retained with the notification.

Question 5

Topic: Function 3 - Customer Protection

Delta Securities is a fully disclosed introducing broker that clears and carries customer accounts through Omega Clearing under a written clearing agreement. Delta has been treating itself as exempt from SEC Customer Protection Rule 15c3-3 based on its introducing relationship.

During a review, the FINOP learns that (1) some customers wire funds into Delta’s operating account before Delta transmits them to Omega, and (2) registered reps occasionally accept physical customer securities certificates at a branch and send them to Omega the next day.

Which FINOP action best aligns with durable exemption-analysis standards under Rule 15c3-3?

• A. Reassess exemption based on actual asset handling; stop or comply
• B. Document the exceptions and wait for the next annual audit
• C. Keep the exemption but have Omega compute a reserve for Delta
• D. Rely on the clearing agreement’s “introducing” designation and continue

Best answer: A

Explanation: Customer Protection Rule exemptions for introducing firms are driven by the clearing/carrying allocation and, critically, whether the introducing firm actually receives or holds customer funds or securities. Here, Delta’s receipt of customer wires and physical certificates indicates it is handling customer assets inconsistent with an “introducing-only” exemption posture. The FINOP should reassess the exemption immediately and either change processes so assets go directly to the carrying firm or implement full 15c3-3 compliance as applicable.

Question 6

Topic: Function 3 - Customer Protection

A carrying broker-dealer maintains a PAB reserve bank account under SEC Customer Protection Rule 15c3-3. The firm’s written election is to compute the PAB reserve requirement monthly.

Exhibit: PAB reserve control log (USD)

Election (PAB computation): Monthly
Last PAB computation date: January 31
PAB requirement per computation: $5,000,000
Balance in PAB reserve bank account on Jan 31 (after deposit): $5,000,000
Cash movement on February 10: Withdrawal of $800,000 (no new PAB computation performed)
Next scheduled PAB computation date: February 28

Which interpretation is supported by the exhibit and baseline Rule 15c3-3 concepts about computation frequency and reserve bank account funding?

• A. The firm must compute the PAB reserve weekly; a monthly election is prohibited
• B. The February 10 withdrawal is not supported without a new computation showing excess
• C. The withdrawal is acceptable because only month-end balances matter under a monthly election
• D. PAB and customer reserve computations must be performed on the same frequency

Best answer: B

Explanation: PAB reserve computation frequency drives how often the firm must size and adjust the PAB reserve bank account based on a documented computation. With a monthly election, the last supported requirement is the January 31 computation, which required maintaining $5,000,000. An $800,000 mid-month withdrawal with no new computation is not supported by the firm’s documented reserve requirement.

Question 7

Topic: Function 1 - Financial Reporting

A broker-dealer has completed its fiscal year-end close and obtained an independent auditor’s report. The FINOP is confirming the firm’s regulatory notification obligations under Exchange Act Rule 17a-5.

Which option best matches the required method and handling of the firm’s annual audited financial report?

• A. Retain the audited statements internally; only provide them upon FINRA request.
• B. Submit the audited annual report only with the quarterly FOCUS filing through eFOCUS.
• C. File the audited annual report with the SEC and the DEA, signed by an authorized officer and the FINOP.
• D. Send an immediate deficiency notice to regulators; no annual filing is required.

Best answer: C

Explanation: Under Exchange Act Rule 17a-5, the annual audited financial report is a formal regulatory filing, not merely a record to retain. It is submitted to the SEC and the firm’s designated examining authority and is executed by appropriate firm signers, including the FINOP.

Question 8

Topic: Function 1 - Financial Reporting

A broker-dealer introduces all customer accounts to a clearing firm, does not hold customer funds or securities, and claims an exemption from the SEC Customer Protection Rule (SEC Rule 15c3-3). Under Exchange Act Rule 17a-5 annual financial reporting, which filing/report is intended to describe the exemption relied upon and assert that the firm met the exemption conditions during the most recent fiscal year?

• A. Annual Compliance Report filed with the audited annual report
• B. Quarterly FOCUS Report (Part II/IIA)
• C. SIPC-7 annual assessment report
• D. Annual Exemption Report filed with the audited annual report

Best answer: D

Explanation: Under Exchange Act Rule 17a-5, broker-dealers file an annual audited report package. If the firm claims an exemption from SEC Rule 15c3-3, it must include an exemption report describing the specific exemption conditions and asserting they were met for the fiscal year. That function is distinct from both the compliance report and routine FOCUS reporting.

Question 9

Topic: Function 4 - Net Capital

A broker-dealer computes net capital under SEC Net Capital Rule 15c3-1. For internal monitoring, the FINOP applies an additional “undue concentration” deduction when any single issuer’s proprietary equity position exceeds 10% of tentative net capital (TNC), because large positions may be difficult to liquidate quickly without price impact.

At month-end, the firm’s TNC is $2,000,000 and it carries a proprietary long position in XYZ common stock with a market value of $600,000 (standard equity haircut applied separately).

Which statement is INCORRECT under these facts?

• A. If the position is marked to market daily, no additional deduction beyond the standard haircut is needed.
• B. Undue concentration charges are intended to address liquidity and market-impact risk in liquidation.
• C. Because XYZ exceeds the firm’s concentration threshold, an additional deduction may be required beyond the standard haircut.
• D. A large position in a single issuer can increase net capital deductions compared with a diversified inventory.

Best answer: A

Explanation: Undue concentration concepts focus on the added risk that a large position in a single issuer may not be readily liquidated at or near its quoted value. That incremental liquidation/price-impact risk can require an extra net capital deduction in addition to the product’s standard haircut, even when positions are marked to market daily.

Question 10

Topic: Function 3 - Customer Protection

Under SEC Customer Protection Rule 15c3-3, a broker-dealer holds customers’ fully paid securities at an unaffiliated foreign bank custodian. The custodian account is titled in the broker-dealer’s name, but there is no written control agreement or other arrangement giving the broker-dealer exclusive control over the securities.

Which choice best describes whether this is likely a control location and the FINOP’s best next step to address possession or control?

• A. It is a control location because the account is titled in the broker-dealer’s name; no further action is required
• B. It is likely a non-control location; treat as a possession/control deficit and move the securities to a good control location or obtain an acceptable control agreement
• C. It is a non-control location, but the issue is handled only through net capital haircuts rather than possession or control remediation
• D. It is a control location as long as the custodian is a bank; the FINOP only needs to perform a monthly position reconciliation

Best answer: B

Explanation: A control location is one where the broker-dealer can promptly direct the return of customer securities (directly or through an acceptable control agreement). Title alone does not establish control if the custodian can restrict release. The appropriate FINOP response is to treat the position as not in possession or control and promptly remediate by moving it to a good control location or putting proper control documentation in place.

Question 11

Topic: Function 2 - Operations, General Securities Industry Regulations, and Preservation of Books and Records

XYZ common stock is distributing transferable subscription rights to existing shareholders. Trades executed on or after the announced ex-rights date are marked “ex-rights” on confirmations. Which statement best matches the “ex-rights” designation as it affects entitlements and delivery?

• A. Buyer receives shares but not the declared cash dividend
• B. Buyer receives the next coupon and pays accrued interest
• C. Shares settle without rights; the seller retains the rights
• D. Seller must deliver the rights with the shares to the buyer

Best answer: C

Explanation: “Ex-rights” indicates the stock is trading without the attached subscription rights. As a result, delivery/settlement is for the shares only, and the buyer of the shares is not entitled to receive the rights; the seller keeps them. This is an entitlement label that impacts what is delivered with the security.

Question 12

Topic: Function 2 - Operations, General Securities Industry Regulations, and Preservation of Books and Records

A carrying broker-dealer is a DTC participant and settles most equity trades through DTC’s CNS (book-entry). On settlement date, a customer cash account purchase of 10,000 shares of a DTC-eligible common stock shows as “received via CNS,” but Operations cannot produce any physical certificate or signed delivery receipt. The FINOP must decide how to evidence delivery and how to code the position’s control location for the firm’s stock record and securities count.

Which action is the single best decision consistent with book-entry settlement and customer protection controls?

• A. Code the shares to the issuer’s transfer agent as a non-control location
• B. Keep the shares “in transit” until a physical certificate is received
• C. Treat the shares as not in possession or control and include them in the reserve computation
• D. Record the shares as held at DTC and retain DTC position/settlement reports as support

Best answer: D

Explanation: Book-entry settlement through DTC is effected by electronic debits and credits to the firm’s DTC account, not by movement of physical certificates. Therefore, the firm should evidence delivery with DTC-generated settlement/position reports and reflect DTC as the control location on the stock record and securities count. A missing physical receipt does not, by itself, mean the securities are “in transit” or outside control.

Question 13

Topic: Function 1 - Financial Reporting

A self-clearing broker-dealer that carries customer accounts uses a customer ledger sub-ledger (by account) that rolls up nightly to the GL control account “Customer credits.” On month-end close day, the FINOP finds the customer credits sub-ledger totals $12.600 million, but the GL control account shows $12.450 million ($150,000 difference). The difference traces to a corporate action cash posting that was booked directly to the GL control account, bypassing the customer sub-ledger; customer statements reflect the credit. The firm uses the GL control account balance in its SEC Rule 15c3-3 reserve computation that will be performed today.

What is the single best FINOP decision?

• A. Reverse the direct GL entry and rebook through sub-ledger
• B. Post a one-line sub-ledger “plug” entry to match the GL
• C. Move the $150,000 difference to a suspense account and close
• D. Keep the GL entry and adjust the reserve computation manually

Best answer: A

Explanation: Control accounts in the general ledger should be supported by, and reconcile to, the underlying sub-ledger that contains the transaction-level detail. Because the customer credit was recorded outside the customer sub-ledger, the roll-up is incomplete and the GL balance used for the Rule 15c3-3 reserve computation is not properly supported. The best decision is to correct the posting path so the sub-ledger and GL control account agree and the reserve computation is based on a validated GL balance.

Question 14

Topic: Function 3 - Customer Protection

A clearing broker-dealer carries retail customer accounts and also carries omnibus accounts for introducing broker-dealers (PAB accounts). During a reserve computation review, the FINOP finds that PAB accounts were coded as “customer” in the stock record and in the reserve workpapers, so PAB margin debits and credits were included in the customer reserve formula.

Which action best aligns with durable customer protection and books-and-records standards under SEC Rule 15c3-3?

• A. Keep coding but deposit an estimated buffer to customer reserve
• B. Correct the stock record allocation and rerun both reserves
• C. Allocate positions by control location, not by account type
• D. Leave coding unchanged and disclose at the annual audit

Best answer: B

Explanation: Customer and PAB activity must be allocated correctly in the stock record and reserve workpapers because the reserve formulas rely on those classifications to determine the net credits that must be protected in the appropriate reserve bank account. Misclassifying PAB as customer can understate one reserve and improperly shift protection between the two populations. The FINOP should fix the recordkeeping and recompute/fund based on corrected allocations.

Question 15

Topic: Function 1 - Financial Reporting

A broker-dealer maintains an accounts payable (A/P) sub-ledger that feeds summary totals into the general ledger (GL). Due to an interface failure, the February A/P sub-ledger balance of $480,000 was not posted to the GL before the FINOP prepared the monthly trial balance and filed the FOCUS report based on the GL.

The net capital computation prepared from the GL shows $150,000 excess net capital. If the missing $480,000 A/P were rolled into the GL, the firm would have a $330,000 net capital deficiency.

What is the most likely consequence of filing based on the unreconciled GL?

• A. There is no reporting impact because sub-ledgers are supporting detail only
• B. The primary impact is an incorrect customer reserve requirement under Rule 15c3-3
• C. The firm may file an inaccurate FOCUS and unknowingly operate net capital deficient
• D. Net capital will be understated because missing A/P reduces allowable assets

Best answer: C

Explanation: Sub-ledgers are not standalone records for reporting purposes; they must reconcile and roll up into the GL that drives the trial balance, financial statements, and FOCUS reporting. If a liability sub-ledger balance is omitted from the GL, liabilities are understated and equity is overstated. Here, that overstatement causes the firm to report excess net capital when it would actually be deficient.

Question 16

Topic: Function 4 - Net Capital

An introducing broker-dealer computes net capital using the aggregate indebtedness (AI) method. The firm signs a 6-month unsecured note payable to a technology vendor for $1.2 million to fund a systems upgrade. There is no executed subordination agreement and the proceeds will be received next week.

The CFO asks the FINOP to record the note as “paid-in capital” so AI does not increase, noting that net capital is still above the firm’s minimum requirement. Which action best aligns with sound net capital controls and accurate books and records?

• A. Net the note payable against any amounts the vendor owes the firm to minimize AI
• B. Defer recognition until the cash is received so AI and net capital are not impacted prematurely
• C. Record it as paid-in capital based on management’s intent and continue monitoring net capital only
• D. Record it as a liability, include it in AI monitoring, and escalate the increased leverage risk to management

Best answer: D

Explanation: Aggregate indebtedness is a high-level leverage measure based on the firm’s liabilities/obligations to others, so it must be captured accurately in the books and reflected in AI monitoring. Even if net capital is currently above the minimum, a material increase in AI can signal rising leverage and liquidity pressure. Proper classification and escalation support reliable regulatory reporting and ongoing compliance.

Question 17

Topic: Function 4 - Net Capital

For purposes of determining allowable assets under SEC Net Capital Rule 15c3-1, which statement about non-marketable securities is most accurate?

• A. A non-marketable security lacks a ready market (e.g., no reliable current quotations or transferability), and it is generally treated as a non-allowable asset for net capital purposes.
• B. Any exchange-listed equity security is considered non-marketable because its price can change rapidly.
• C. Non-marketable securities are always valued at cost and included in net capital with a standard haircut.
• D. A security is non-marketable if it has been held in the firm’s inventory for more than 30 days.

Best answer: A

Explanation: Non-marketable securities are those without a ready market or reliable current pricing and liquidity (often due to limited transferability or the absence of active quotations). Because they are not readily convertible into cash at a determinable value, they are generally treated as non-allowable assets and deducted in the net capital computation under Rule 15c3-1.

Question 18

Topic: Function 4 - Net Capital

A broker-dealer currently introduces all customer accounts to a clearing firm and relies on an exemption from SEC Customer Protection Rule 15c3-3. During month-end FOCUS preparation, the FINOP is told the firm plans to begin carrying customer accounts next month (holding customer cash and securities at the firm).

Assume that carrying customer accounts raises the firm’s minimum net capital requirement to $250,000 (from $5,000 as an introducing broker) and also requires compliance with Rule 15c3-3. The firm’s current net capital is $80,000.

What is the FINOP’s best next step in the correct sequence?

• A. Wait until after the first carried customer trade settles to update the net capital monitoring and procedures
• B. Escalate that the firm cannot launch until it is funded to meet the higher minimum net capital and has a Rule 15c3-3 program in place
• C. File the next FOCUS report using the higher minimum net capital requirement and address operational changes later
• D. Begin the customer reserve computation now and fund the reserve account at month-end

Best answer: B

Explanation: When a firm starts carrying customer accounts, the FINOP must treat it as a business change that affects both sides of the capital framework: a higher minimum net capital requirement under SEC Rule 15c3-1 and new safeguarding/reserve obligations under SEC Rule 15c3-3. With net capital at $80,000 versus a $250,000 minimum, the firm cannot begin carrying until it is properly funded and the customer protection controls are implemented.

Question 19

Topic: Function 3 - Customer Protection

A carrying broker-dealer maintains a Special Reserve Bank Account for the Exclusive Benefit of PAB Accounts under SEA Rule 15c3-3. The firm computes its customer reserve weekly but has elected to compute its PAB reserve monthly. Firm policy states that any required deposit or permitted withdrawal must be made no later than the next business day after each reserve computation.

Which statement is INCORRECT regarding how PAB computation frequency interacts with reserve bank account funding?

• A. Electing weekly PAB computations would generally cause reserve funding adjustments to occur more frequently than a monthly election
• B. The firm should apply its elected PAB computation frequency consistently and document any change along with related funding procedures
• C. Between monthly computations, the firm may withdraw PAB reserve funds for firm expenses if it plans to redeposit them before month-end
• D. Monthly PAB computation sets the required PAB reserve amount at least once each month, and any deficit must be funded based on that computation

Best answer: C

Explanation: PAB reserve computation frequency determines how often the required PAB reserve amount is recalculated, but it does not allow the firm to use the PAB reserve bank account as a general funding source between computations. The reserve bank account must remain funded in accordance with the most recent computation, and withdrawals are limited to computed excess amounts.

Question 20

Topic: Function 4 - Net Capital

A FINOP is reviewing the firm’s haircut support file for a proprietary position. The firm states the haircut treatment was based in part on the security’s liquidity (i.e., trading activity/marketability), and the FINOP must confirm the file contains appropriate support.

Exhibit: Haircut support file index (Position: XYZ common stock)

Which item most directly supports the firm’s liquidity assumption used in its haircut determination?

• A. Clearing firm position report
• B. Security master record
• C. Internal desk email
• D. Market data vendor report

Best answer: D

Explanation: Liquidity support for haircuts should be based on objective market evidence of trading activity and pricing (e.g., quotes and average daily volume from an independent source). In the exhibit, only the market data vendor report provides that type of liquidity/marketability documentation for the security.

Question 21

Topic: Function 5 - Funding and Cash Management

A broker-dealer’s FINOP is preparing a mid-month net capital forecast and identifies a projected shortfall in two weeks. The CFO proposes receiving $2.5 million from the parent as a “loan” that (i) is repayable on 10 days’ notice at the parent’s option and (ii) is secured by a pledge of the firm’s proprietary securities. The CFO asks whether the funds can be treated as regulatory capital once wired in.

What is the FINOP’s best next step?

• A. Require an approved subordinated agreement or true equity contribution
• B. Deposit it to the reserve bank account to support net capital
• C. Book it as a note payable and include it in net capital
• D. Reclassify it as paid-in capital based on the loan term sheet

Best answer: A

Explanation: The proposal is debt-like because it is callable and secured, so it would be recorded as a liability and would not improve net capital under SEC Rule 15c3-1. The FINOP should not rely on the incoming cash for regulatory capital until the funding is structured as a true capital contribution or as a properly subordinated borrowing that can be included in net capital.

Question 22

Topic: Function 4 - Net Capital

In a broker-dealer net capital context, “business curtailment” most accurately refers to which type of action that may be imposed when capital problems arise?

• A. A required increase in haircut percentages applied to proprietary positions
• B. Operational limits that reduce activities and restrict capital withdrawals until compliance is restored
• C. An accounting reclassification that converts non-allowable assets into allowable assets
• D. A mandatory transfer of customer funds into a reserve bank account to fix a net capital deficiency

Best answer: B

Explanation: Business curtailment is a high-level concept describing restrictions that limit what a broker-dealer can do when its capital position deteriorates. The goal is to stop the firm from taking on new risk or paying out cash in ways that could further reduce net capital while the firm restores compliance.

Question 23

Topic: Function 4 - Net Capital

For purposes of SEC net capital (Rule 15c3-1), which statement about options/derivatives haircuts is most accurate?

• A. Options haircuts are generally calculated on the full notional value of the underlying, even when the position is properly offset or hedged.
• B. Customer margin excesses may be netted against the firm’s proprietary options haircuts to reduce total market-risk deductions.
• C. Options/derivatives haircuts are risk-based deductions; recognized offsets/hedges can reduce the net haircut, while under-margined customer exposures can create additional net capital deductions.
• D. Options haircuts are based only on the option premium, so hedges and margin levels do not affect the net capital impact.

Best answer: C

Explanation: Net capital haircuts are designed to cover potential market losses on positions, including options and other derivatives. When positions are properly offset or hedged, the firm’s net market exposure is lower, so the net haircut is lower. Separately, if customer-related option exposure is under-margined, the deficiency increases the firm’s unsecured risk and results in additional net capital impact.

Question 24

Topic: Function 4 - Net Capital

While preparing the broker-dealer’s monthly net capital computation under SEC Rule 15c3-1, the FINOP reviews the trial balance and notices a $150,000 “Prepaid technology subscription (12-month contract)” recorded in Other Current Assets. The contract is non-cancelable and the vendor will not refund any unused amounts.

Which action best aligns with net capital standards and accurate regulatory reporting?

• A. Keep it as an allowable current asset since it will be expensed within 12 months
• B. Apply a market-value haircut and include the remainder as allowable
• C. Record it as an allowable receivable from the vendor for future services owed
• D. Reclassify it as a prepaid expense and treat it as a non-allowable asset

Best answer: D

Explanation: Prepaid expenses for nonrefundable services are not readily convertible into cash, so they are treated as non-allowable assets for net capital purposes. To keep the net capital computation accurate, the FINOP should ensure the prepaid amount is properly classified and fully deducted from net worth when computing net capital.

Series 27 FINOP financial controls map

Use this map after the sample questions to connect individual items to net capital, customer protection, books and records, regulatory reporting, custody, and operational-control decisions these Securities Prep samples test.

    flowchart LR
	  S1["Financial or operational event"] --> S2
	  S2["Classify capital custody or reporting impact"] --> S3
	  S3["Check books records and computations"] --> S4
	  S4["Apply customer protection and reserve logic"] --> S5
	  S5["File report or escalate deficiency"] --> S6
	  S6["Document remediation and monitoring"]

Quick Cheat Sheet

Mini Glossary

• FINOP: Financial and operations principal responsible for broker-dealer financial reporting and controls.
• Operations: Back-office processing, books and records, settlement, custody, and control functions.
• Supervision: Firm process for review, approval, escalation, and evidence of compliance.
• Order handling: Process for receiving, routing, executing, modifying, and documenting orders.
• AML: Anti-money laundering controls for identifying, monitoring, and reporting suspicious activity.

In this section

• Series 27: Financial Reporting
  Try 10 focused Series 27 questions on Financial Reporting, with explanations, then continue with the full Securities Prep practice test.
• Series 27: Operations and Records
  Try 10 focused Series 27 questions on Operations and Records, with explanations, then continue with the full Securities Prep practice test.
• Series 27: Customer Protection
  Try 10 focused Series 27 questions on Customer Protection, with explanations, then continue with the full Securities Prep practice test.
• Series 27: Net Capital
  Try 10 focused Series 27 questions on Net Capital, with explanations, then continue with the full Securities Prep practice test.
• Series 27: Funding and Cash Management
  Try 10 focused Series 27 questions on Funding and Cash Management, with explanations, then continue with the full Securities Prep practice test.
• Free Series 27 Full-Length Practice Exam: 145 Questions
  Try 145 free Series 27 practice questions across the official topic areas, with answers and explanations, then continue with the full Securities Prep question bank.