General Securities Representative (Series 7) Practice Exam

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When do equity options that are exercised settle?

Next business day
Within 3 business days
Within 5 business days
On the same day of exercise

The correct answer is: Within 3 business days

When equity options are exercised, the settlement occurs within three business days. This is in accordance with standard industry practices, specifically for listed options. Upon exercise, the seller of the underlying stock must deliver the shares, and the buyer must pay for them; this transaction typically takes three business days to complete. This timeline is significant because it allows time to ensure all parties involved have the necessary funds and shares, as well as to coordinate the transaction between the brokerage firms. It's important for investors to understand this timeframe to properly manage their positions and expectations regarding when they will actually own the shares or when funds will be withdrawn from their account. The other options reflect incorrect timelines for settling exercised equity options based on industry standards.