Chapter 1 - Brokerage office procedures

Question 1

U4 - Uniform application for securities industry registration.

Answer 1

Used to collect the applicants personal and professional history, including:

• 10 year employment history
• 5 year resident history
• legal name and any aliases used
• Any legal or regulatory actions

Question 2

Changes to U4 (timeframes)

Answer 2

30 days - general changes impacting U4

10 days - felony or misdemeanor charges

Question 3

U5 - uniform termination notice for securities industry registration

Answer 3

• volunteer separation (not violation related)

- new employer obtains from FINRA or employee. Not from old employer.

Question 4

Firm Element (timeframe)

Answer 4

Yearly

Question 5

CE requirements (timeframe)

Answer 5

Base date = exam passing

Start in year 2, then every 3 years after (2, 5, 8, 11…)

Failure to complete = suspension status

Question 6

Registration exemptions

Answer 6

• clerical
• non-supervising officers and managers not dealing with customers
• non-US citizens working abroad
• floor personnel

Question 7

U6

Answer 7

FINRA will submit disciplinary actions that are taken on form U6

Question 8

Selling away

Answer 8

If a representative sells investment products that the employing member does not conduct business in without the members knowledge, then the representative has committed a violation known as selling away.

Question 9

Gift rule (to an employee of another B/D)

Answer 9

• must be valued less than $100 per person, per year
• must be given directly to employing firm for distribution to employee
• have employing firm pre-approval

Exclusions:

• occasional meal
• business related travel
• lucite prospectus and awards
• occasional tickets to sporting events

Note: giver attends = not a gift (considered entertainment)

Question 10

Order tickets

Answer 10

Prior to executing a customers order the representative must fill out the appropriate order ticket and present it to the trading department or wire room for execution.

Tickets will include:

• buy/sell
• name of security
• number of shares/bonds
• account name and number
• account type
• price & time limits (if any)
• solicited or unsolicited
• discretionary exercised
• time stamp

Question 11

Trade date

Answer 11

The trade date is the day when the order is actually executed

Question 12

Settlement date

Answer 12

The buyer of a security actually becomes the owner of record on the settlement date. The settlement date is two business days after the trade day. This is known as T+2.

ADRs and municipal bonds settle on the third business day, or T+3.

Regular-way transactions in government securities settle on the next business day, or T+1.

Question 13

Payment date

Answer 13

The payment date is the day when the buyer of security has to have the money to the brokerage firm to pay for the purchase. Industry rules are 4 business days after the trade date, or T+4

Question 14

Calculating accrued interest

Answer 14

Corporate & municipal:
(Principal x interest rate) x (# of days/360)

To calculate the accrued interest for a government issue, use the actual number of calendar days in the month and a 365 day year.

Question 15

Close out

Answer 15

In the case where the selling broker dealer fails to deliver the securities to the buying broker dealer, the buying broker dealer may close out the trade by purchasing the securities in the open market. This is known as a buy-in, and the selling broker dealer will be responsible for any loss as a result of the buy-in.

Question 16

Rules for good delivery

Answer 16

Must be in good condition and must:

• be signed by all owners, and all owners must be alive.
• be in the correct denominations, such as number of shares or par value of bonds.
• have all attachments.
• be accompanied by a uniform delivery ticket.

Question 17

Reclamation

Answer 17

A broker dealer may return or demand the return of securities previously excepted for delivery through a process known as reclamation.

Question 18

Marking to the market

Answer 18

A broker dealer who has an open contractual commitment to another broker dealer will monitor the market value of the securities involved relative to the contract or trade price. This process is known as marking to the market.

Question 19

Dividend distribution dates

Answer 19

Declaration date: The day that the Board of Directors decides to pay a dividend.

Ex Dividend date: The first day when purchasers of the new security are no longer entitled to receive the dividend

Record date: The day when investors must have their names recorded on the stock certificates in order to be entitled to receive the dividend.

Payment date: The day when the corporation actually distributes the dividend to shareholders.