Flashcards in Customer Accounts 6% Deck (46)
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
-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
-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?
What info is required for a cash account
-signature of the principal who approved the account
-customer investment suitability information
-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 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
-affidavit of domicile (in some states)
-inheritance tax waiver form
-letters testamentary (court-recognized will)
Describe a "Corporate" Account
-must provide a copy of corporate resolution to the b/d
-identifies who can trade
-provide a copy of its corporate charter, which must state the firm
may engage in margin activity
Who uses DVP
-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
-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
-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