Chapters 19/20 Flashcards

Question

How are securities valued for estate tax purposes?

Answer 1

Securities are generally valued as of the date of death or as of an alternative date that’s six months after the date of death.

Answer 2

Declaration date: The date where the dividend is authorized. Record date: The date where an investor must own the stock to be eligable to receive the dividend. Payment date: The date where the declared dividend is paid out to shareholders.

Answer 3

The date, same as the record date, where the stock begins to trade w/o its dividend. This is set by the SRO.

Answer 4

If someone buys a stock before the ex-dividend date, but the seller fails to deliver the security by the ex-dividend date, then the seller will receive a due bill to not only deliver the security, but the accompanying dividend.

Answer 5

Equity options are usually issued w/ expirations of up to 9 months. They will expire on the 3rd Friday of the expiration month and stop trading at 4pmET on the expiration date. Although the option won't actually expire until 11:59pmET, the right to exercise will stop at 5:30pmET. ## Footnote * Member firms can accept exercise notices after 5:30pmET, but only if there was some error made or exceptional circumstances.

Answer 6

When the OCC receives exercise instructions from the firm that represents the purchaser, it will randomly ***assign*** the exercise notice to a BD whose account shows a short option position that’s identical to the long option position being exercised. If a broker-dealer receives an assignment notice, it must select a client to whom the notice will be assigned. There are 3 methods to choosing the client: 1. Random selection 2. FIFO 3. Any other method that's fair and equitable

Answer 7

Allows investors to hold securities in book-entry form, rather than to receive physical delivery. DRS is linked with DTCC and electronically transfers assets to and from the transfer agent and BD.

Answer 8

False, mutual funds don't have a fixed settlement; however, payments for redemptions must be made within seven calendar days.

Answer 9

* Affidavit of domicile * Notarized copy of the death certificate * Copy of a will or court appointment * State inheritance tax waiver

Answer 10

All BDs must have an error account where they record trade errors are made by the RRs. The RR does NOT decide on their own to place a trade in the error account, but rather this is done by a registered principal. ## Footnote * BDs are NOT responsible for errors caused by the clients.

Answer 11

If a RR executes a transaction using the wrong account #, the appropriate remedy is to transfer the transaction to the appropriate account # w/ the permission of a registered principal. ## Footnote * If there’s a cancel and rebill, corrected confirmations must be generated. Ex: If the original transaction was to a client's cash account but was meant for their IRA, two confirmations are needed: one for the cancellation of the original and one for the new.

Answer 12

The client is obligated to accept the actual execution. A corrected confirmation will be generated and sent to the client.

Answer 13

An obvious error in any term, such as price, # of shares or other unit of trading, or identification of the security. These trades may be voided by FINRA.

Answer 14

It's erroneous if the market price differs 10% from the transaction's last consolidated sale during market hours. 20% if the trade happens outside of market hours.

Answer 15

5% during normal market hours and 10% outside of normal market hours.

Answer 16

3% during normal market hours and 6% outside of normal market hours.

Answer 17

10% during normal market hours and 10% outside of normal market hours.

Answer 18

Normal market hours numerical guidelines multiplied by the leverage multiplier (i.e., 2x).

Answer 19

Low end of range, min. 20% High end of range, min. 10%

Answer 20

Low end of range, min. 10% High end of range, min. 5%

Answer 21

Low end of range, min. 5% High end of range, min. 3%

Answer 22

1. Whether the security was subject to a stock split or other corporate action 2. Whether the stock was recently halted or resumed trading 3. Whether the security is an IPO

Answer 23

The member firm MUST submit a written complaint within 30 minutes of execution. ## Footnote * In the case of an Outlier Transaction, a request may be made within 60 minutes after the transaction. * A FINRA officer or Nasdaq official has the authority to declare a transaction null and void. The officer usually takes action within 30 minutes of becoming aware of a transaction in an exchange-listed security. * In the case of an OTC equity security, the officer will take action ASAP, but in all cases, by 3pm on the next trading day.

Answer 24

A transaction in the Nasdaq market in which the execution price of the security is greater than three times the current numerical guidelines.

Answer 25

An appeal to a NASDAQ or FINRA ruling can be made to the Market Operations Review Committee (MORC) or the Uniform Practice Committee (UPC). The appeal must be in writing and must be received within 30 minutes after the person making the appeal is given notification. ## Footnote * For exchange-listed securities, the decision will be made as soon as feasible, but generally on the same trading day. For OTC equity securities, the decision will be made as soon as feasible, but no later than two trading days after the execution under review. * On a request for an appeal made after 3:00 p.m., the decision may not be made later than the next trading day.

Answer 26

Any written statement made by a client (or person acting on behalf of a client) that makes any grievance involving a person working under a member firm in connection with a transaction. ## Footnote * The complaint may be delivered in any written format, which includes letters, e-mails, instant messages, and text messages.

Answer 27

The complaint MUST be forwarded to a principal who reviews and initials the complaint. Member firms must keep the complaints in an office of supervisory jurisdiction (OSJ) for 4 years. The file must contain the firm's course of action. A firm's course of action can be written or verbal. ## Footnote * Even if a member firm has never received a complaint, a complaint file must be kept.

Answer 28

Describes the disciplinary process used in the event that a member firm or any of its associated persons violate FINRA rules, SEC rules, or fail to pay dues or assessments.

Answer 29

The department of enforcment requests authorization to issue a complaint. The member firm to whom the issue is against is considered the *respondent*. The respondent must file a response to the complaint within 25 days of receiving it. If the respondent fails to respond, a second issue is sent. If after 14 days of sending the second issue the respondent still fails to respond, it's considered an admission of guilt. A respondent has the right to a hearing that consists of a Hearing Officer and two panelists. The Hearing Officer is an attorney employed by FINRA. The panelists are associated w/ or retired from other member firms. Within 60 days after the Hearing Panel has stopped accepting evidence, a written decision must be rendered that was arrived at by majority vote. ## Footnote * The hearing officer must provide the repondent w/ 28 days of advanced notice of the hearing.

Answer 30

* Censuring a BD or RR * Fining a BD or RR * Suspending the membership of a BD or RR * Cancelling the membership of a BD or RR * Suspending or barring a RR from association w/ a BD * Any other fitting sanction. ## Footnote * Other than being barred or expelled, a sanction is effective 30 days after the respondent has received notice of a final disciplinary action. A bar or expulsion is effective as soon as the decision is served on the respondent.

Answer 31

A respondent has 25 days to appeal a hearing panel decision. The appeal must be made to FINRA’s National Adjudicatory Council (NAC). A respondent has the right to appeal the NAC’s decision to the SEC. Finally, if dissatisfied with the SEC’s decision, the matter may be brought before a federal court. ## Footnote * The Department of Enforcement can also appeal a hearing panel's decision.

Answer 32

Used for disputes between member firms and clearing corporations, and between member firms and employees of member firms. Disputes MUST be filed within 6 years of occurance. | NOT used for disputes between member firms and FINRA ## Footnote * For any disputes that involve statutory discrimination or sexual harassment claims, using arbitration is not required

Answer 33

Depending on the $ amount of the dispute, the National Arbitration Committee will appoint a panel of 1-3 arbitrators to hear the dispute. If a customer is involved, the majority of the arbitrators will be *public arbitrators* (NOT work in the securities industry). All awards granted by the arbitrators must be paid by the guilty party within 30 days of the decision. If not, there will be further penalties. ## Footnote * Unless the law directs otherwise, the findings of the arbitrators are final for both members and customers.

Answer 34

A procedure used if the amount < $50k. In a simplified arbitration, one arbitrator gives the final ruling w/o a hearing based on written evidence.

Answer 35

An alternative to arbitration in dispute resolution. This is where the two parties come to terms w/o arbitration or litigation by using a mediator who is knowledgable about the securities industry as a 3rd party to facilitate negotiations. Mediations continue until a resoltuion is found, the mediator determines that they have met an impass, or one of the parties/the mediator withdraws from negotiations. | When the parties meet w/ the mediator, the meetings are called caucuses ## Footnote * Sometimes, only part of an issue is settled through mediation leaving the more challenging aspect for arbitration. * The parties are NOT required to wait until the mediation is over to begin the process of arbitration.

Answer 36

False, in arbitration, the hearings are pvt. but the result is public. In mediation, the discussions and results are pvt.

Answer 37

Any conviction, charge, or guilty plea to any: * felony or misdemeanor involving investments or an investment-related business or any fraud * false statements or omissions * wrongful taking of property * bribery * perjury * forgery * counterfeiting * extortion * conspiracy to commit any of these offenses. ## Footnote * A person who has been arrested, but has not yet been charged with a crime, is not required to report the event on Form U4 or to FINRA.

Answer 38

* Criminal legal proceedings * Regulatory disciplinary actions * Civil judicial actions * Customer complaints * Terminations * Financial events (bankruptcies, leans placed against the person, etc.) ## Footnote * Any changes in a person's life that applies to these must be disclosed within 30 days. * Failure to report anything could lead to someone being barred from the securities industry. * An answer of yes to any one of these questions requires an explanation on the appropriate disclosure reporting page (DRP) of the U4 and could lead to a statutory disqualification.

Answer 39

After a registered person resigns or is terminated from a member firm, the firm is required to notify FINRA within 30 days on Form U5 and must provide the applicable details. If anything changes, Form U5 must be updated within 30 days after the registered person leaves the firm. ## Footnote * If a broker-dealer receives a written customer complaint after an RR has left the firm, it’s still required to notify FINRA regardless of how long ago the RR had left the firm. However, there’s no requirement to send a copy of the complaint to the former RR.

Answer 40

Used to report disciplinary actions against an RR or BD.

Answer 41

An automated database that contains info regarding the employment and disciplinary histories of registered persons. ## Footnote * If any information on an individual Form U4 changes, an amendment to the CRD system must be filed promptly.

Answer 42

A public site to access info about RRs

Answer 43

* The RRs employing firm and 10 years of work history * Legal and regulatory charges brought on against the RR * Customer-initiated arbitrations and civil proceedings and settlements of MORE THAN $15K. * Written customer complaints alleging sales practice violations and compensatory damages of $5k or more in the last 24 months. * Terminations of employment after allegations involving violations of investment-related statutes or rules, fraud, theft, or failure to supervise investment-related activities ## Footnote * If someone disagrees with info found on BrokerCheck, they must file an amended U4.

Answer 44

Member firms, at least once per year, must provide customers w/ these disclosures: * BrokerCheck hotline * FINRA's website * A statement regarding the availability of an investor brochure that includes information describing FINRA BrokerCheck

Answer 45

Info is removed from the CRD if the info is false or clearly erroneous OR the RR was not involved in the activity.

Answer 46

Send the unsigned certificates in one envelope, and send a signed stock or bond power in a separate envelope.

Answer 47

Clearing: The buyer and seller have agreed on the terms of the trade Settlement: The delivery of securities and payment for those securities

Answer 48

A type of options strategy used when an options trader expects a decline in the price of an underlying asset. A bear call spread is performed by simultaneously selling a call option and buying another call option at a higher strike price and the same expiration date.

Answer 49

An options strategy where the investor sells the put, then buys a lower strike put within the same order.

Chapters 19/20 Flashcards

(83 cards)