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Flashcards in Chapter 7 Client Accounts Deck (50)
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31

Escheatment

The process of turning over a client’s unclaimed or abandoned property to a state authority, but not to the federal government
Escheatment occurs when a client:

Dies without a will(intestate) or

Cannot be located

32

Securities Investor Protection Corporation(SIPC)
Protects separate customers(not accounts) against B/D bankruptcy NOT ACCOUTNS

Multiple accounts at a firm of the same client are combined; however, joint accounts are considered separate

Coverage:

Cash & street name securities:

Will only cover cash up to:
SIPC coverage is NOT needed for securities specifically identified as belonging to a customer (they are distributed without limit)
Not Covered by SIPC

Accounts of the B/D’s senior officers or directors

Fraud, futures contracts, or commodities

33

Red Flag Issue

A representative who works in a bank branch explains that SIPC’s role is to protect customer accounts from losses. Is the statement correct?

N, the rep is confusing SIIC with the FDIC. SIPC does not protect customers from losses in their portfolios.

SIPC - for brokerage firms

34

Protesting an Account Transfer
Acceptable reasons for protesting a transfer request include:

Additional documentation is required (e.g., death certificate)

The account is flat and reflects no assets

Account number is invalid

Social Security number or account title is mismatched

Receipt of writteninstructions to rescind request from client

But NOT a dispute over securities positions or money balances
For any discrepancy claim that occurs after transfer, the carrying firm must resolve the claim within five business days
If transfers arise due to an RR switching firms and taking clients, the carrying firm may attempt to convince clients to stay

35

Non-Transferable Assets
At time of transfer, a client’s account may contain non- transferable assets, including:

Proprietary products of carrying member

Product of a third party (mutual fund or annuity) with whom the receiving firm has no relationship

Limited partnership interest in retail accounts
If an account has any of the above assets, carrying firms must offer the following alternatives:

Liquidation of the securities with payment to client within 5 business days •Any surrender charges must be disclosed by carrying firm

Retention of the securities with the carrying firm

36

Customer Communications
Firms may hold customer correspondence:

For 3 months if traveling abroad

For 2 months if traveling within the U.S.
Written authorization from client required

Account Statements

Must be sent by broker-dealers at least quarterly

However, if an account is active, statements are typically sent monthly

Statements may be electronic or physical

37

DVP/RVP account does not get statement it gets a

confirm

38

Penny Stock Rules
Penny Stock Regulations apply to solicited sales of unlisted, non-Nasdaq equities priced below $5 per share

Firms have special suitability, approval, and disclosure procedures (a disclosure document)

Established customers are exempt from these requirements, which includes clients who have: •Been with the firm for more than a year, or •Made three separate purchases of different penny stocks

39

Red Flag Issue
You notice that an online customer has begun to liquidate some long-held positions and is uncharacteristically moving the sales proceeds into penny stocks. What is your primary concern?

Identity Theft

40

Federal Trade Commission Red Flag Rules
Financial institutions must create reasonable policies and procedures for detecting, preventing, and mitigating identity theft
The program should enable a firm to:

Identify relevant patterns, practices, and specific forms of activity –“red flags” –that signal possible identity theft

Incorporate business practices to detect red flags

Detail appropriate responses to any red flags detected to prevent and mitigate identity theft and
The program must be updated periodically to reflect changes in risks from identity theft

41

Which of the following provisions of a margin agreement are NOT optional:

I. loan consent agreement
II. hypothecation agreement
III. house call provision
IV. credit agreement

II and IV

In order to purchase stock on margin, a customer must sign a margin agreement.

Key mandatory provisions are:
-hypothecation agreement
-credit agreement

loan consent is optional

42

To approve a customer's account for transactions in a penny stock, the broker-dealer must take all of the following actions, EXCEPT:

they must
a. determine suitability for transaction
c. deliver a written statement to customer regarding determination of suitability
d. Obtain manually signed and dated copy of suitability statement from client

43

Non held order where the customer gives the RR discretion or price and time only may be executed with or without discretionary authority?

may be executed without discretionary authority.

written not required

44

Under CIP (Customer Identification Program) the firm must obtain from customer

1. name
2. date of birth
3. address
4. identification number

may be requested but not mandatory

45

All are required when opening customer account

1. street address
2 signature of rep opening account
3. signature of principle approving account

NOT - address of customers previous employer

46

Under UGMA (Uniform Gifts to Minors) approach the social security number of the minor or parent is needed?

Minor

47

Currency Transaction Report is filed (CTR) if how much a cash deposit exceeds?

$10K

48

Roger rep suspects money laundering but does not report it under AML violations including willingly negligence are punishable?

Yes , up to 20 years in jail

49

if arbitrated of RR not handling a clients mutual fund redemption order properly then the evidence will be

examined and decision rendered by single public arbitrator

50

A customer signature is required when opening which of the following accounts

1. Cash
2. Margin
3. Options

Margin and Options require signature