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Flashcards in Customer Accounts 6% Deck (46)
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What are the two types of discretion?

-only authorize trades in the customer account
-may also withdraw cash and or securities from the account


What are the main differences between JTWROS and TIC Accounts?

-these are joint accounts
-Joint Tenants with rights of Survivorship
-each spouse owns and undivided 50% of the account
-Tenants in common
-unequal ownership is permitted


How many donors may contribute to an UGMA/UTMA account?



What is the current Regulation T margin requirement?



What is the difference between long and short maintenance rules? Who is responsible for their enforcement?

-Long maintenance is 25% of long market value
-25% of stock price
-debit balance/.75%
-Short maintenance is 30% of the short market value
-30% of stock price
-credit balance divided by 130%


What are the sources of SMA? What are its uses?



How does SIPC define a customer?



How much financial protection is provided for each securities customer under SIPC Coverage?



Key to this section?

understanding certain definitions


What is the cash account?

-also called a "special cash account"
-securities must be paid for in full
-required for minors
-for guardianship
-must have sufficient cash in the account and must pay in 5 days(Reg T payment deadline)


Whose name are securities purchased in margin held?

-street name


What info is required for a cash account

-Customer's name
-signature of the principal who approved the account
-customer investment suitability information
-financial info
-investment objective
-Risk Tolerance
-Time Horizon
-Patriot act requires a review of the customer's gov issued id.


when does a customer account become frozen?

-if they don't pay for their securities in 5 days and the b/d doesn't ask the SRO for an extension.


What happens when a customer's account is frozen?

-security is sold
-account frozen for 90 days, can't trade on margin, but can on cash
-must have money in the account before b/d enters any buy orders
-if a customer purchases a security and sells the same security without first paying for the original purchase, b/d freezes and won't release the sales processes to the customer until the customer pays for the original purchase


What is the process for a customer to transfer an account from one broker to another?

-Sign ACATS Form - Automated Customer Account Transfer Service
-New b/d sends to old b/d
-old b/d has one day to review and 3 days to transfer the funds
-options within 7 days of expiration remain at the old b/d
-under MSRB, b/d has 3 days to validate positions and 4 days to complete transfer


What one or more things make a Trade a "Discretionary Trade", as it applies to a RR making the choice?

-The security
-the quantity; or
-the action (buy or sell)
-Time and Price does not make a trade discretionay


How is a discretionary account opened?

-Customer must sign a Discretionary account agreement
-RR's principal must approve and then regularly review the account


What securities are Fiduciaries typically limited to in Discretionary Accounts?

-legal list - gov, muni, corporate debt (rated BBB and higher)

-prudent man rule - conservative, prudent in investments, only investments that would be made by a prudent individual are allowed


Describe an Individual Account

-opened when one adult owns the entire account contents
-b/d may discuss the account, and receive trade instructions from the owner only
-must have advanced written permission from anyone else, even your spouse to discuss account with


Describe "Prime Brokerage Accounts"

-for wealthy individuals or portfolio managers who want simplified paperwork
-receive one statement even though may trade by several different b/d


Describe "Joint" Accounts



What happens to account when an owner dies?

-must be frozen
-all open orders canceled
-account must be marked "deceased"
-Proper legal paperwork must be gathered
-death cert
-affidavit of domicile (in some states)
-inheritance tax waiver form
-letters testamentary (court-recognized will)


Describe a "Corporate" Account

-to open
-must provide a copy of corporate resolution to the b/d
-identifies who can trade
-margin account
-provide a copy of its corporate charter, which must state the firm
may engage in margin activity


Who uses DVP

-Institutional Investors
-Delivery vs Payment
-b/d delivers and large commercial bank pays
-must pay within 35 days


Describe a "partnership account"

-basic info required on each partner
-partnership agreement required - names who is authorized to trade


Up to what age does the custodian retain control on a UTMA?

most states is 25, and says the transfer must be done by then


Who is responsible for taxes on UGMA/UTMA

-the minor
-Younger that 19, if the taxable income is in excess of $1900, the excess is taxable at the parents highest marginal rate
-Older than 19 (or 24) taxed at the minor's tax rate


When is payment due on all securities?

-5 biz days (regular way + 2
-Except for
-gov securities
-cash trades made before 2:30PM
-OPTIONS (the underlying securities settle the regular way)
-must pay next day on all


Describe "Margin Accounts"

-sign margin agreement
-contains a "hypothecation agreement" - customer agrees to
hypothecate or pledge the account securities as collateral for margin
or the loan from the b/d.
-customer agrees the b/d may re-hypothecate these securities as
collateral to a bank
-b/d re-hypothecates these securities when its borrows funds from
the bank to use for the customer's margin
-margin interest is tax deductible
-except for muni, which are rarely traded on marging
-all short sales are traded on margin
-if an investor has a margin account, they have a cash account
-these do not account if the margin account has a debit balance


Describe Regulation T

-created under the Securities exchange act of 1934
-Fed Reserve Board was granted authority