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Series 27 study materials
Series 27 study resources

Series 27: Operations, General Securities Industry Regulations, and Preservation of Books and Records

Series 27 · Work through your exam, one topic at a time.

All guide sections

Operations, General Securities Industry Regulations, and Preservation of Books and Records

Operations

What the exam tests

Operations questions test the trade lifecycle, clearing arrangements, and the reconciliation controls that keep the books accurate.

Core concepts

  • Settlement is T+1 for most U.S. equities and corporate bonds. Trade date drives the books; settlement date drives cash and fails.
  • Clearing models: a fully disclosed introducing firm uses a clearing broker; an omnibus relationship keeps the clearing firm's name on the street side. Know who holds the customer account and who computes the reserve.
  • Depositories and clearing: NSCC clears and guarantees trades, DTC holds immobilised securities, and OCC clears options.
  • Fails: a fail to deliver or receive is marked to market and can become a net capital charge. Buy-ins and close-outs follow FINRA rules.
  • Stock record vs. control: the stock record shows ownership; the control location shows physical/book-entry location. Differences must be investigated.
  • Rule 17a-13 requires a quarterly count of securities and verification of all positions, plus a count at fiscal year-end.

Traps

T+1 versus T+2 (old rules); ex-date versus record date (under T+1 the ex-date is one business day before record date); due bills on dividends; treating a fail as settled; forgetting that the quarterly count is required even when no customers hold certificates.

Worked example

A customer buys 1,000 shares on Monday. Settlement is Tuesday under T+1. If the shares are not delivered by settlement, the firm has a fail to receive and must mark the position and monitor it for buy-in and net capital impact.

General Securities Industry Regulations and Preservation of Books and Records

What the exam tests

This domain covers the recordkeeping rules that underpin every other domain: Rule 17a-3 (records to be made) and Rule 17a-4 (retention). It also touches registration and compliance program obligations.

Records to make (17a-3)

The firm must create and keep records of accounts, order tickets, confirmations, customer complaints, and the books that support the financial statements. Fingerprint records and Form U4/U5 filings are part of the personnel record set.

Retention (17a-4)

  • Most books and records: 6 years, with the first 2 years readily accessible.
  • Certain records - correspondence, order tickets, and similar communications - must be kept 3 years.
  • Electronic records must be preserved in a non-rewritable, non-erasable (WORM) format, with an audit trail and indexed retrieval.

Compliance programs

Know the AML program (Bank Secrecy Act), suspicious activity reporting, customer identification, privacy under Reg S-P, and the general obligation to supervise.

Traps

The exam loves the 6-year/2-year/3-year distinction. "Readily accessible" applies to the first two years, not the entire period. An order ticket is a 3-year record, not a 6-year record. Electronic storage must be WORM; a simple backup is not enough.

Worked example

An order ticket for a customer trade must be retained for 3 years. The firm's general ledger and financial records must be retained 6 years, with the first 2 years easily accessible.