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Series 7 > Customer Accounts > Flashcards

Flashcards in Customer Accounts Deck (52):

Traditional brokerage account where securities must be paid in full. Either a cash balance must be maintained, or the investor must pay for the securities within 5 business days to purchase securities.

Cash Account


The following information was collected. What account is being opened?

  • Name
  • Address
  • DOB
  • SSN
  • Signature of principal who approved account
  • Customer investment suitability information
    • Customer financial information
    • Investment Objective
    • Risk tolerance
    • Time Horizon.

A new cash account


What government act requires broker/dealers to review the customer's current, government issued photo ID which includes driver's license, passport or military identification?



The broker/dealer is about to ask the SRO for additional time for the customer, or the customer's account will be frozen for 90 days. What did the customer do?

Failed to pay for the securities purchase by the 5 day Reg T deadline


What is the consequence for purchasing a security and selling the same security without first paying for the original purchase?


Your account is frozen


This form is used to transfer an account from one broker/dealer to another, that the customer must sign. The new broker/dealer sends this form to the old broker/dealer. FINRA allows the old broker/dealer 1 day to verify the account positions and another 3 days to complete the transfer. Under MSRB rules, a muni broker/dealer has 3 days to validate positions and 4 days to complete the transfer. Once form is signed and sent, all new trades executed with new firm and old frim freezes the old acocunt and cancels open orders.

Automated Customer Account Transfer Service (ACATS)


Trade in which the registered representative chooses one of more of the following

  • Security
  • Quantity
  • Buy or sell

Discretionary Trade


Type of discretion where the representative may only authorize trades in the customer's account

Limited Discretion


Type of discretion where a representative may in addition to authorizing trades in the customer's account, also withdraw cash and/or securities from the account

Full Discretion


A customer just signed an account agreement which must be approved by a principal prior to the first trade. Also, a principal must regularly review activity in the account. What kind of account did the customer open?

Discretionary Account


What two things are fiduciaries often limited to when it comes to investing in discretionary accounts?

Legal List and Prudent Man Rule


Investments that fiduciaries use for discretionary accounts that are limited to safe securities only, such as government, as well as municipal and corporate debt offerings rated BBB or better. Equities and options are not included. 

Legal List


Conservative, prudent investments; only investments that would be made by a prudent individual are allows

Prudent Man Rule


Account owned entirely by one adult. The broker/dealer may discuss the account with, and accept trades from the account owner, but cannot share information outside of the relationship. 

Individual Account


Account that bypasses probate and transfers directly to the deceased owner's beneficiaries. This is always an individual account.

Transfer on Death Account (TOD)


Accounts for wealthy individuals or portfolio managers who want reduced paperwork, that is taken care of by the broker/dealer. Because the broker/dealer is involved in safekeeping assets, they are subject to a higher net capital requirement per SEC.

Prime Brokerage Account


Account where two or more adults has an undivided interest in its entirety. Any owner may issue trade instructions. To withdraw cash, every owner's name must be on it.


Joint account commonly used for married couples that requires equal ownership ineterests, is subject to estate taxes and bypasses probate. If one owner dies, the survivor inherits the account and can continue making trades.

Joint Tenant with Rights of Survivorship (JTWROS)


Joint account where unequal ownership is allowed and the deceased's ownership interest passes to the owner's estate

Joint Tenants In Common (TIC)


The following occurs:

  • The account is frozen
  • All open orders are cancelled
  • The account is marked 
  • Legal paperwork including affadavit of domicile, tax waiver form and will are needed

What happened?

An account owner died


Document that identifies the individual within the corporation who is authorized to trade on its behalf, that must be provided to the broker dealer when opening a corporate account.

Corporate Resolution


Document needed in order for a corporation to open a margin account, that states whether the firm can engage in margin activity.

Corporate Charter


Account where insititutional investors have a paying agent, which is usually a large commercial bank. Paying agent is middle man between broker/dealer and investor with discretionary ablities belonging to the investor. With this arrangement, the parties have 35 days to settle the transaction.

Deliver Versus Payment Account (DVP)


Document needed to open a partnership account that names the individual who is authorized to trade on behalf of the partnership

Partnership Agreement


An account that only allows one custodian and one minor that must include the social security number of the minor. Securities are registered in the name of the custodian for the benefit of the minor. When minor reaches age of majority, account is reassigned in his/her name.

Uniform Gifts to Minor Account (UGMA)


An account that only allows one custodian and one minor that must include the social security number of the minor. Securities are registered in the name of the custodian for the benefit of the minor. The custodian can hold the account up to age 25 of the minor.

Uniform Transfer to Minors Act Account (UTMA)


Tax liabilities in a UGMA/UTMA from capital gains and dividend and income distributions are who's responsibility?

The Minor


Trade settlement where the customer purchasing securities on margin has 5 days to pay. The Federal Reserve Board was granted the authority to establish payment dates for customers for customers. 

Prompt Payment for Securities Purchased


Member firm may apply for this through FINRA due to the investors late payment of securities, otherwise the firm liquidates the account and freezes it.

Extension of Time


A customer's account is frozen for 90 days, no credit cannot be extended to the investor but can still purchase securities with cash. What did the customer do to have his/her account frozen?

Investor failed to pay for securities on time


Agreement that the customer will pledge the account securities as collateral for margin, or the loan from the broker dealer. The customer also agrees that the broker/dealer may re-pledge these securities as collateral to a bank when the broker/dealer borrows funds from the bank for the customers margin account.

Hypothecation Agreement


Account that allows customers to take out loans against securities they own, which requires potential investors to go through screening process and sign an account agreement. This account will also have a cash account.

Margin Account


Regulation created by the Securities Act of 1934 that has a margin requirement of 50%, which means customers who purchase securities on margin must deposit at least 50% of the securities value, that determines which OTC and unlisted stocks are marginable by the FRB (includes NASDAQ National Major Market stocks). This applies only to equity, not debt.

Regulation T


Stocks listed on national exchanges or on the NASDAQ National Market system, and certain OTC stocks approved by the FRB, that can be purchased on margin. This does not include new issues or shares of open-end mutual funds.

Marginable Securities


Rule that applies upon opening a margin account with a margin transaction, or upon the first margin transaction. If the total value of securities purchased is less than $2000, the investor must deposit 100% of the value. In a long account, the deposit is never more than the securities value. In a short account, the minumum never falls below $2000. 

Minimum Equity Rule


Position where a customer opens margin account to utilize leverage in the purchase of securities. The borrowing allows the customer to purchase more securities than normally possible. This customer is bullish and wants the market to go up.



Long Position


Position where a customer is bearish and expects market value to drop and has unlimited upward risk.



Short Position


LMV - DB - SMV + CB = ?

Account equity with long and short positions


What affects margin equity?

Cash and Market Value changes


Investor has long position with unrealized gain and wants to lock the gain, but doesn't want to close the position. The investor sells stock short and locked in a sales price, but still owns the original position. The short position is covered by the long position and does not require cash. What is this strategy?

Short Against The Box


This comes into a margin account from deposits, dividends and interest received. It increases equity and lowers debit. It goes out as a loan, or if interest is charged to the account, which increases debit balance.



Current price of the security and represents the price that the owner would receive if the stock were sold at that time. An increase in this increases long equity and decreases short equity. Moves with equity on long positions and against on short positions. 

Market Value


Rules established by the NYSE and FINRA that long margin positions must have a 25% of value, and short margin positions must have 30% of value

Maintenance Rules


If stock trades between $5 and $17.50, what is the minimum deposit amount for a margin account short sale? 

$5 a share


If stock trades between $2.50 and $5, what is minimum margin deposit for short sale?

100% of value


If stock trades $2.50 or lower, what is the minimum deposit for short sale?

$2.50 per share


Line of credit that increases 50% of market appreciation, or 150% of market decline.

Special Memorandum Account (SMA)


The ability to buy $2 of stock for every $1 in SMA

Buying Power


SMA x 1

SMA can be borrowed to meet the Reg T requirement on stock purchase. SMA value falls due to usage, you buy stock equal to twice the value of the SMA used and debit balance goes up by the full value of the purchase.

Borrowing Power


Margin account for a professional money manager who qualifies for uncovered option writing and other risky activities. Minimum equity requirement is $100k, but is allowed higher level of leverage than normal.

Portfolio Margin Account


Investor who buys and sells securities on the same day, and has done so on 4 days in 4 different securities over the last 5 days. Must have minimum equity in account of $25,000. No cross lien, only investor's dollars.

Pattern Day Trader, Day Trading Account


Act that established procedures for the protection of customer funds and securities in the event that a broker/dealer becomes insolvent. This act created an entity that collects assessments from broker/dealers in order to protect customers from loss due to a failed broker/dealer.

Securities Investor Protection Act of 1970