Chapter 1.7 Flashcards

(16 cards)

1
Q

Opening a new municipal account, the following must be obtained from a customer other than an institutional customer prior to settlement of a transaction:

A
  • Name and address
  • Whether the customer is of legal age(DOB is NOT required)
  • TAX ID
  • Occupation
  • Employer
  • Name and address of beneficial owners of the account if other than the customer
  • Signature of registered representative or general securities principal
  • Written authorization is discretionary
  • Whether customer is employed by another broker/dealer
  • Written authorization for hypothecation
  • Don’t need education background, or marital status.
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2
Q

What must a municipal securities dealer obtain following the opening of a new account?

A
  • Investment objectives
  • Financial background
  • Tax Status
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3
Q

When making recommendations, representatives must consider:

A
  • Suitability
  • Safety of Principal
  • Income needs
  • Current or future liquidity needs
  • *If a transaction is deemed unsuitable, it may only be executed if it was unsolicited.
  • *Stating that put options are a guarantee against loss is prohibited.
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4
Q

When information from a customer is incomplete:

A

Recommendations may not be made

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5
Q

Recommendations made at an investment seminar

A

The MSRB applies the provisions of the rules regarding recommendations to potential customers and to customers who make inquiries from municipal advertising. Therefore, prior to making a recommendation, the RR must “know your customer” and have a reasonable basis for making a particular recommendation to that customer.

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6
Q

Discretionary Accounts

A

A MSRB Dealer Must:

  • Obtain written authorization from the customer and the account must be accepted in writing by a municipal principal prior to allowing any transactions to be effected in the account.
  • Determine that any transactions are “suitable” for the client unless the transaction is specifically directed by the customer and not recommended by the dealer.
  • MSRB Principals must approve in writing on a daily basis each transaction in discretionary accounts
  • Decisions as to “time and price” only do not require discretionary authorization.
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7
Q

Institutional Customer Account information - when opening a new account for an institution, the following account information is required prior to settlement of a transaction:

A
  • Customer Name
  • Principal Business Address
  • Tax ID #
  • Financial background and investment objectives
  • Signatures of RR’s and Principal
  • Written discretionary authorization if applicable
  • Written margin agreement, if applicable
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8
Q

Churning

A

Excessive trading in size and frequency in a customer’s account by a salesperson.

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9
Q

Guarantees

A

No B/D shall guarantee or offer to guarantee a customer against loss in an account or transaction done for a customer. Put options and repurchase agreements shall not be deemed to be a guarantee against loss.

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10
Q

Sharing in Customer Accounts

A

No B/D shall share directly or indirectly in the profits and losses in a customer’s account except in a private capacity which is in direct proportion to their financial contribution to the account.

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11
Q

Service Charges for transfer and safekeeping of customer securities held in Street name

A

May be levied if the charges are “fair and reasonable” and not discriminatory between customers.

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12
Q

Suitable investment for an investor in their early 60’s who is looking for income and preservation of capital:

A

Choose insured municipal bonds with a moderate maturity providing a good yield.

**You would not choose Corporate bonds(taxable and risky) or variable rate municipals.

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13
Q

Suitable investment for an investor looking for tax-exempt interest and is conservative:

A

Choose AAA Municipals that provide a good yield but would not invest in zero coupon municipals.

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14
Q

Customer account transfers

A

If firms involved in a transfer are participants in a clearing agency registered with the SEC, the account will be transferred under the rules of the clearing agency. Otherwise, the MSRB requires the transfer of Form G-26 using the following procedures:

  • After the customer’s completion of transfer instructions, which are given to the receiving B/D, the instructions are sent to the carrying firm.
  • The carrying firm then has 3 business days to validate the positions in the account or take “exception” to the transfer.
  • Upon validation, the account is frozen. Open orders are canceled and no new orders may be accepted.
    • The receiving and carrying parties must immediately establish fail-to-receive and fail-to-deliver contracts as of the date of validation against the long and short positions in the customer’s account.
  • The carrying firm must complete the transfer action to the receiving firm within four business days following validation.
  • Any failed contracts due to the transfer must be closed out according to the MSRB close out procedures
  • Any money or security position differences must be resolved promptly and are not valid objections to invalidate the transfer.
  • If a client has non-transferrable assets, the carrying firm must request in writing prior to or at the time of transfer further instructions regarding disposition of the assets. These instructions could include:
    • Liquidation of the assets
    • Retention of the assets by the carrying party, or
    • Moving the assets to another dealer who can hold the assets
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15
Q

When can the carrying firm “take exception” to the transfer?

A

Only if the carrying firm:

  • Has no records of the accounts
  • The transfer instructions are incomplete, or
  • The transfer instructions contain an improper signature
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16
Q

Transactions with Sophisticated Municipal Market Professionals

A

A B/D who reasonably concludes that a customer is a Sophisticated Municipal Market Professional, will not have the same obligations that the firm would have when dealing with a customer that is not a sophisticated municipal market professional. Those differences are:

  • Time of Disclosure: No obligation to ensure disclosure of material information that is reasonably accessible to the market.
  • Transaction Pricing: No obligation to take action to ensure that transactions meeting all of the following conditions are effected at fair and reasonable prices:
    • Transactions are non-recommended secondary market agency transactions.
    • The B/D services have been explicitly limited to providing anonymity, communication, order matching, and/or clearance functions; and
    • The B/D does not exercise discretion as to how or when the transactions are executed.
  • Suitability: The B/D shall not have any obligation to perform a customer-specific suitability analysis.
  • Bona Fide Quotations: The B/D disseminating an SMMP’s “quotation” shall apply the same standards regarding quotations as if such quotations were made by another B/D
  • Best Execution: The B/D shall not have any obligation to use reasonable diligence to ascertain the best market for the subject security.