Customer Account Flashcards
(146 cards)
1
Q
Arbitration Agreement
A
- not required
- if customer receives it, must be signed within 30 days
2
Q
BCP Plan
A
- must be provided at account opening, and provided on firm;s website
3
Q
SIPC
A
- must be provided at account opening, and annually thereafter
4
Q
Regulation BI
A
- ALWAYS PUT CUSTOMERS BEST INTEREST FIRST
5
Q
BA Suitibility standard
A
- broker-dealers held to a suitability standard
- takes the opposite side of the transaction
- can charge markups and commissions
6
Q
IAs- Fiduciary standard
A
- regulated by state
- mus take the same side as inventory
- can only charge fixed fees
7
Q
FORM CRS
A
- details if it is a BA transaction or IA transaction
- the fees and costs customer will pay
- whether firm has discplinary events
- only required for retail clients
- form must be on top and on website
8
Q
Signatures required on a new form
A
- registered represenative
- customer signature is not required
9
Q
Customer must verify account within
A
30 days
- must be sent every 36 months after
10
Q
Suitability rules do not apply to
A
- institutional customers
- unsolicited trades
- investment analysis tools
11
Q
Structured Products
A
- derived from a basket of securities
- bond portion ( s& p 500)
- embedded option, sell at maturity
- illiquid
- credit risk
12
Q
The risk associated with structured products
A
- credit risk bc there is no underlying portfolio
13
Q
Day Trading Account
A
FINRA requires much more detailed communication when opening an account
14
Q
Pattern Day Trader
A
- person who engages in 4 or more day trades in 5 days
15
Q
Day Trader disclosure document
A
- day trading can be risky
- be wary of exaggerated claims of profits by day trading
- knowledge of securities and operations
- generate substantial commissions to the firm
- losses greater than one’s investment
- must be IA or BD
16
Q
Approval of day trading account
A
- no later than 10 days following the initial notice of the member day trading
17
Q
Non managed fee-based accounts
A
- flat annual fee for all trade executions
- must be provided with a disclosure document, describing the types of programs available
- obligated to determine if the customer is suitable
18
Q
Annual account review
A
- member firm monitor account activity every 12 months for customers not placed into an appropriate account
19
Q
If the annual review determines that the NFBMA account is costly,
A
- customer should be contaced and the situation discussed
- ## if the customer wishes to keep the account, then follow the customer’s command
20
Q
Senior citizen suitability
A
- customer must fully understand the product
- firm does not have obligation to shield customer from risk if they want to take
21
Q
Unsuitable recommendations/ red flags for senior citizens
A
- purchase variable annuities, equity indexes, and RELPS
- Purchase variable life settlements
- purchase complex structured products, CDOs.
- mortgage their residence to obtain fund for other investments
- use retirement savings, early withdrawals
22
Q
Bogus Certificates
A
- certified senior advisor
- certified financial gentrologist
- senior specialist
- retirement specialist
23
Q
Senior citizen and diminished mental capacity
A
- document the suspected diminished mental capacity, and escalate immeditely
- firm should have a clearly designed member on who to contact in these situations
24
Q
Steps to do after escalating a diminished mental capacity
A
- stop trading in the account until the concern no longer exists
- communicated with trusted contact or POA
- Maintain frequent contact with the investor
- consult appropriate state statutes to figure out the next step
25
Financial exploitation of senior citizens
- allows member firms to place temporary holds on disbursements from client accounts when fraud is suspected
- individuals 65 or older
- individuals 18 or older with a diminished mental capacity
26
Examples of finacial exploitation
- unauthorized or wrongful taking of funds
- attempt to maintain control of the account by deception
- attempt to convert/retitle the account owner's funds, assets, or property
27
If a firm expects any of the financial exploitation acitivies they may
Place a 15 day hold on disbursements from the account that seem suscpicous
- if member review expects the disbursements are suspicious they can place another 10 day hold
28
Options disclosure document
- must be received before account opening, date the form was sent must be on form
29
Options agreement
must be signed and returned no later than 15 days after account opening
30
Level 1
can only sell covered calls or buy puts only to hedge
31
level 2
can buy calls and puts to speculate
32
level 3
can take spread positions
33
level 4
can do anything, naked or covered
34
In order to move up in levels _____
suitability determination must be redone and options agreement must be resigned and dated within 15 days
35
Special statement for uncovered option writers
Discloses that
1. naked call writers have unlimited risk and naked put writers have a substantial risk
2. if broker demands additional margin due to adverse market movements, can liquidate customers positions without warning
3. if the secondary market were to become unavailable, the writer would be subject to exercise at any time
4. uncovered option writers are only suitable for the knowledgeable investors
5. the writer of an American style option is subject to exercise at any time, European is subject during the exercise period
36
New account options form signature
- the registered representative
| - the manager of the branch office ROP
37
MSRB suitability rule
Must have knowledge about the customer's financial background, tax status, investment objective
38
determing tax status
- tax bracket and state of residence
39
under MSRB rules, if a customer refuses to disclose financial status
no recommendations are to be made
| - unsolicited trade can still be accepted
40
If customer wants to place a trade that might not be suitable the RR should
- still place trade if customer wants it
| - mark it as unsolicited, and even sometimes phone tape the conversation
41
Series 9/10 can approve and sign
- new account forms that trade stocks, options, and municipal bonds
42
General 24 Securities license responsibilities
- can oversee all the firm's supervisory activities
| - approve accounts that trade stocks and municipal bonds NOT OPTIONS!
43
CBOE requires who to sign a new account form
ROP( series 4) or series 9/10
| - no customer signature
44
MSRB requires who to sign a new account form
- Series 53, se
| - Series 9/10 or the series 24
45
Margin agreement
- must be signed by customer at or prior to first trade settlement in the account
- hypothecation agreement, customer agreement
- pledges the customer securities in the account in return for the margin loan
46
Loan consent agreement
- allows the firm to loan out customer's securities for short sales
- usually signed, not mandatory
47
Credit agreement
- how the debit balance is computed and how interest will be charged on the loan
- signed by customer
48
Risk Disclosure Document
- explains how margin accounts used borrowed money to magnify returns in a rising market vice versa w a falling market
49
JWROS
-upon death, the surviving owner maintains full assets
50
JTIC
-upon the death of one of the owners it can be passed upon will to who they designate
51
Convenience account
- an elderly parent who has many children, opens an account with one child, and the child can only draw checks for the parent. Upon death, the assets go into the estate
52
Prime brokerage account
- typically used by hedge funds to consolidate all of their positions with one firm
- can use different executing brokers for its trades, but all are settled by the prime broker
53
Fiduciary accounts are
CASH ACCOUNTS ONLY, NO MARGIN
54
discretionary account requires
Written POA before trading take places
55
Trade is considered to be discretionary if
size and security is chosen
56
market-not-held orders must be entered that day if given verbally or
written POA is required,
57
Every discretionary order ticket must be signed __
The appropriate principal promptly
58
When opening an account for an employee of another member firm under FINRA rules
- written notice to executing member
- written consent of employer member
- dupe confirms and statement sent on request
59
When opening an account for an employee of another municipal firm
- requires that dupe confirmations be sent, not on request
60
When opening an account for employees of another CBOE member firm
- prior consent of the member firm must be obtained and duplicate confirmations and statements must be sent
61
Custodial accounts are____ accounts
CASH ACCOUNTS NOT MARGIN
| -
62
Custodial accounts are transferred to ____ at legal age
into the name of the new adult at legal age
63
UTMA assets
- allows any kind of asset, including real estate and fine art
64
UGMA assets
-only allows financial instruments as assets
65
Omnibus account
- where all customer monies are pooled but the record of all customer's positions in the account is maintained by the investment advisor
66
Wrap accounts
- all fees are tied into one
| - considered an investment advisory product and individuals selling such accounts must pass the series 65 or 66
67
Numbered account
- to keep the identity of the customer a secret
| - must have written request and approval attesting to the ownership of the account
68
Customers must receive written confirmation of each transaction by
- the day after the trade date for the regular way trade
| - confirmation details the amount purchased or sold, execution price and amount of commission charged
69
Statements must be sent
monthly if trading occurs, or quarterly if no trading occurs
70
Customer records that should be kept on file by RR
Copy of New account information
chronological order of trades
the current account statement, showing positions
used to make suitable recommendations
71
Error in Execution
- if firm does not execute at the correct price, the firm is responsible to make good on the order
72
Trasnferring account to a new firm
- must be freezed
- old firm must validate positions within 1 day, the transfer must be completed within 3 days to a new firm
- any securities that have been borrowed for a short sale at the firm must be delivered within 10 business days of validation date
73
Death of a customer
- Cancel all open orders
- freeze the account from the removal of assets
- note customer is deceased with DOD
- await further instructions from executor of estate
74
Retention of records - closed account
- new account forms must be retained for 3 years, and customer statements for 6 years
75
Order Department
enters orders and transmits execution reports back to the person who entered the order
76
Purchase and sales department
- prepares trade confirmations to be sent to customer and records the trade
77
FATF
Financial Action Task force
| - 29 countries the combat anti-money laundering
78
Verification of Name and Address
- must independently verify the name and address
79
SARs
must befiled with Fincen within 30 days
80
Placement
- making cash deposits below reporting thresholds
81
layering
- funds are often continuously wired from country to country making it hard to trace the source
82
Integration
- final stage where the funds are returned to the criminal
83
Regulation SP
- provide retail customers with the firm's privacy policies and practicies at account opening and yearly there after
84
The Federal Reserve sets margin on ______ securities
non exempt
85
Regulation T applies to
non exempt securities
86
The minimum Maintenance margin is set by
FINRA
87
Hypothecation agreement
- holds securities in customer's accounts in " street name"
- repledges securities to a bank for broker loan
- Commingle one customer's securities with another customer's securities
88
Broker Loan
- funds borrowed from the bank by the broker at a short term money market rate
" call loan rate"
- larger the debit balance the less the interest spread taken by the brokerage firm
- only margin securities in street name can be rehypothecated
89
Regulation U
- controls the extension of credit from the bank to the broker
- so brokerage firms cannot borrow more money from banks using customer securities as collateral more than the actual loan
90
The interest rate charged on banks to brokers
call loan rate/ broker loan rate
91
The maximum amount of customer securities that may be rehypothecated to a bank by a broker is
140% of customer debit balances (the debit balance is the amount lent by the broker to the customer)
92
Exempt Securities
U.S Government Issues
Agency Issues
Municipal Issues
Commercial Paper
93
Marginable securities
- Non- Exempt, actively traded
| - securities listed on a stock exchange, specific OTC trading
94
Non-marginable securities
- Non-marketable securities
- OTC issues not included in the OTC margin list
- New issues for the first 30 days
-
95
Cash account securites
- any security can be purchased in full, promtly within 2 business day
96
Regulation T Cash account payment frame
- 4 days, S+2
97
Reg T Extension
- under exceptional circumstances, the firm may ask for a Reg T extension
- granted by FINRA and gives the customer another 2 business days to be paid
- if the customer does not pay, the firm is obligated to sell out that position and freeze the account for 90 days
98
Margin account
- where marginable securities can be bought on margin and where both long and short sales are permitted AS LONG AS REG T MARGIN IS MET
99
Regulation T Margin account apyment frame
- 4 days , S+2
100
Arbitrage account
- the simultaneously buying and selling short of the same security, short against the box
101
When an account is "frozen", what happens
payment in advance is required for purchases; and delivery of securities in advance is required for sales.
102
Regulation T of the Federal Reserve Board sets the initial margin to buy stock at
50%
103
Regulation T of the Federal Reserve Board sets the initial margin to short stock at
50%
104
Regulation T states that if a customer purchases and sell securities on the same day, any deposits required by the purchase are______
offset by the sales proceeds generated from each sale
105
If a customer sells a security, but does not deliver the shares
The position must be bought ten days after settlement
106
In the unusual case that min margin is higher than Reg T, what must be paid
- the higher amount
107
FINRA sets the minimum maintenance margin for long stock positions at
25%
108
Minimum Margin to open a long account
=$2,000
109
Minimum Margin to open a short account
=$2,000
110
FINRA sets the minimum maintenance margin for short stock positions at
30%
111
Minimum margin for day trading accounts
$25,000
112
Cheap Stock Minimum Margin under $5
-the greater of %100 of sale amount, or 2.50 a share
113
Cheap Stock Minimum Margin valued at $5 or more
$5 or 30% of sale amount, whichever is greater
114
FINRA minimum for arbitrage accounts
%5
115
Long and short margin accounts must be marked to market
daily
116
formula for long margin equity
long margin- debit = equity
| equity/ long market value = margin percentage
117
SMA
Special Memorandum Account
- unused additional borrowing in an account
- anything over the reg t requirement may be used
118
Long Margin
| For every _$ the long market value increases over margin,$.50 of SMA is created
$1, $.50
119
SMA Formula
=50% of market value- debit
120
Amount of SMA in an account that can be borrowed
- borrowed in cash, or twice the amount can be borrowed in marginable securities
121
Buying Power =
2 X SMA
122
If an account loses value and drops below Reg T requirement ________
the account is restricted
| - limit on withdrawal of funds from the account if securities are sold
123
Restriction formula
- 50% of long market value- equity
124
To eliminate a restriction
- cash must be deposited equal to the restriction amount
- 2 times the restriction amount must be deposited in fully paid securities
- 2 times the restriction amount must be sold in securities
125
Minimum maintenance for long margin account
- %25
126
As long account decreases in value
- market value decreases
- debit remains unchanged
- equity decreases
127
Market Value at maintenance formula
debit balance/.75
128
Maintenance call amount for an account below minimum
25% of LMV - Equity
129
SMA and falling market
- "locks"
| - automatic stabilizer for declining markets
130
cas dividends and SMA
- reduces the debit, increases SMA
131
SMA formula for short margin
equity- 50% market value
132
For every $_ decline in MV, it produces $__ in SMA
$1, $1.50
133
Selling Power
2X SMA
134
As a short account rises in value,
Market value decreases;
Credit is unchanged;
Equity decreases.
135
To find the market value to which a short account can rise and be at minimum maintenance, the formula is
credit balance/1.3
136
Combined margin account formula
LMV- SMV +CREDIT - DEBIT
137
When a short cover (purchase) is made
Credit balance declines;
Short market value declines;
Equity is unaffected;
SMA increases.
138
Cash Dividends on Short Stock Position
must be paid from the short seller to the person from whom the stock was borrowed.
The dividend amount is offset against the credit in the short seller's account - this reduces both the credit balance and the equity in the account.
139
Inital margin to sell naked positions
- 20% of underlying security and 10% minimum margin requirement
140
To buy an option with a maturity of 9 months or less, Reg T requires
100% of the premium must be deposited, whether the option is bought in a cash or margin account.
141
Regulation T sets the initial margin to buy LEAP options (long-term options) that have over 9 months to expiration at
75% of the purchase amount
142
If a customer buys stock in a cash account,
100% of the purchase price of the stock must be deposited.
143
f a customer buys stock in a margin account
50% of the purchase price of the stock must be deposited.
144
If the customer sells a call against the stock position on the same day
no margin is required to sell the call because it is "covered" by the long stock position.
145
If a customer has an existing long stock position in either a cash or margin account
it is assumed that the stock position is properly margined.
146
portfolio margin
- institutional and very wealthy investors, minimum $100,000
- reduce the margin requirement for stock positions thats are hedge my option positions
max is 15%
