Series 24 - Session Two - Customer Accounts

Question 1

An individual account can be set up as TOD. What does this mean?

Answer 1

Transfer on death which allows the transfer of securities to the beneficiary at the death of the owner. It supercedes the will and is not subject to probate.

Question 2

Can a minor be a joint owner of an account?

Answer 2

No

Question 3

Who can make trades and disburse cash and securities in a joint account?

Answer 3

Any one of the account holders

Question 4

What is JTWROS?

Answer 4

Joint Owners With Right of Survivorship which means an undivided interest in the account

Question 5

What is TIC?

Answer 5

Tenants in common and each account owner has a percentage interest in the account.

Question 6

In a corporate account, why is a resolution required?

Answer 6

A resolution defines who has legal authority and who can trade in the account.

Question 7

When can a corporate account give permission to officers to trade on margin?

Answer 7

Only if it is specifically stated int he charter or bylaws

Question 8

In a partnership account, why is a resolution required?

Answer 8

The resolution defines which partners are authorized to trade in the account

Question 9

When can a partnership account give permission to partners to trade on margin?

Answer 9

If is it clearly stated in the partnership agreement

Question 10

How often are partnership agreements required to be updated?

Answer 10

Annually

Question 11

In a fiduciary account, describe the prudent man rule.

Answer 11

The prudent man rule says anything can be bought and/or sold in the account if it is a product a prudent man would invest in

Question 12

In a fiduciary account, describe the legal lists by state?

Answer 12

The list is decided upon by the state legislature and other those products on the list can be purchased in a fiduciary account.

Question 13

Can margin trades be made in a fiduciary account?

Answer 13

Usually not unless it is clearly stated in the agreement.

Question 14

What is required to open an account in the name of a trust?

Answer 14

a copy of the trust agreement

Question 15

Can margin trades be made in a trust account?

Answer 15

only if provided for in the trust agreement

Question 16

What is a guardianship account and what are the time requirements for opening?

Answer 16

A guardianship account is mandated in a court order and must be opened within 60 days of the court appointment - certificate of incumbency.

Question 17

What are the two types of custodial accounts?

Answer 17

UGMA and UTMA

Question 18

In a minor account, how many custodians and how many minors are allowed per account?

Answer 18

one custodian and one minor

Question 19

In a custodial account, who can open an account for a minor?

Answer 19

Any adult

Question 20

Whose social security number is on a minor account…who will receive the 1099?

Answer 20

the minor

Question 21

What supporting documentation is required to open a minor account?

Answer 21

none

Question 22

Can a custodian be reimbursed for expenses?

Answer 22

Yes

Question 23

Can a custodian be paid for services?

Answer 23

Yes unless he custodian is also the donor

Question 24

What happens at the death of the minor in a minor account?

Answer 24

The assets go to the minor’s estate

Question 25

What two things can a custodian not allow in a minor account?

Answer 25

1) rights or warrants to expire worthless 2) free credit balances to build up over time

Question 26

What age does the minor become legal in a UGMA account?

Answer 26

The age of majority for the state.

Question 27

What age does the minor become legal in a UTMA account?

Answer 27

Up to age 25

Question 28

What are DVP accounts?

Answer 28

Delivery vs payment - basically COD

Question 29

Who make delivery or securities sold or makes payment for securities purchased in a DVP account?

Answer 29

An agent bank (U.S bank)

Question 30

Who provides the name, address and account number on file for the agent bank in a DVP account?

Answer 30

The customer

Question 31

Who must assure that proper instructions have been given to the agent bank in a DVP account?

Answer 31

The customer

Question 32

How are trades settled for DVP accounts?

Answer 32

Regular way

Question 33

If delivery is delayed in a DVP account, how many days does the member have to make payment?

Answer 33

35 calendar days

Question 34

Typically, what is the difference between when business days are used and calendar days are used?

Answer 34

If it's more than 30 days, calendar days are usually used. If it's less than 30 days, business days are typically used.

Question 35

What is the minimum net capital required for a prime brokerage account?

Answer 35

$1.5 million

Question 36

What is a fee-based account?

Answer 36

One that charges a fixed monthly or annual fee for all trades

Question 37

How often are fee-based accounts required to be reviewed?

Answer 37

periodically

Question 38

Fee-based accounts are not appropriate for buy and hold customers. True or False

Answer 38

True

Question 39

In an UGMA minor account, at the death of the minor, the assets in the account pass to the custodian. True or False

Answer 39

False

Question 40

A new account form must include what 4 primary things?

Answer 40

1) an arbitration agreement 2) signatures - customer and principal 3) Form w-9 for US citizens and Form W-8 for non US citizens 4) Patriot Act requirements of name, address, dob and SSN

Question 41

Do RRs have to sign an account opening form?

Answer 41

no, only a principal

Question 42

What documents can be used to verify identity according to the US Patriot Act?

Answer 42

passport, driver's license; military ID; state issued ID

Question 43

What is the procedure if you are unable to verify a customer's identity?

Answer 43

refuse to open the account or close the account

Question 44

A customer new account form for the customer to verify the information must be provided within how many days?

Answer 44

within 30 days of account opening

Question 45

How many days for changes to a customer account?

Answer 45

30 days

Question 46

How often does customer account information have to be updated?

Answer 46

Every 36 months

Question 47

Order tickets must be reviewed by a principal within what time frame?

Answer 47

promptly

Question 48

Discretionary accounts should be reviewed how often and for what two main purposes

Answer 48

1) at least quarterly 2) for unsuitable trade and churning

Question 49

What is required to revoke discretionary authority of an account?

Answer 49

it must be in writing

Question 50

Not-held orders do not required discretionary authority. Why not?

Answer 50

1) you do not choose timing and price 2) they are considered day orders

Question 51

What happens to discretion authority at the customer's death?

Answer 51

It ceases

Question 52

Discretionary authority gives the RR the ability to make decisions on what 3 things?

Answer 52

1) activity - whether to buy or sell 2) amount - how many shares should be purchased and 3) which asset to purchase, i..e, IBM stock, T-bills, etc.

Question 53

What 2 things does the RR not have discretionary authority over?

Answer 53

1) timing 2) price

Question 54

What 3 things should be done immediately if an individual customer dies?

Answer 54

1) cancel open orders, limit orders, stop orders, POAs, and freeze accounts 2) mark the account "deceased" 3) await proper legal papers

Question 55

What are "proper legal papers" required at the death of a customer?

Answer 55

1) copy of the death certificate 2) who is required to pay the inheritance tax 3) letter of testamentary

Question 56

What is an affidavit of domicile and when it is required?

Answer 56

some state require this at the customer's death --usually any state with an inheritance ta provision

Question 57

What happens when one of the JTWROS owner dies?

Answer 57

The surviving tenant assumes the decendents interest with proper documentation

Question 58

Can a surviving JTWROS continue to enter orders in an account?

Answer 58

Yes but they cannot remove assets without documentation

Question 59

What happens when one of the TIC owner dies?

Answer 59

1)Decedents interest goes to their estate with proper documentation 2) surviving tenant cotenant with the decedent's estate until transferred 3) surviving tenant cannot enter orders until documentation is provided

Question 60

What 4 things are required on an order ticket?

Answer 60

1) Name or number 2) prompt endorsement by a principal 3) all ticketes must be marked solicited or unsolicited 4) sell tickets must be marked long or short

Question 61

When are customer confirmation required to be sent?

Answer 61

On or before settlement date. Electronic delivery ok with customer permission. Website = access = delivery

Question 62

SEC Rule 10b-10 outlines requirements for disclosure on a customer confirm. What 8 disclosures are required?

Answer 62

1) agent or principal 2) market maker status is applicable 3) control relationship, if applicable 4) dual agency, if applicable 5) mark up or mark down 6) name of other party in agency trades 7) commission 8) preference order payment flow

Question 63

What is a riskless principal transaction?

Answer 63

I do not know

Question 64

When are customer statements required?

Answer 64

Quarterly if no activity; monthly if activity

Question 65

How often is notice to customers of free credit balances required?

Answer 65

Quarterly

Question 66

Electronic delivery of information to customer is allowed if what?

Answer 66

1) customer has provided written permission 2) a website is accessible and is password protected

Question 67

How long does a carrying firm have to validate and ACAT form (used for transferring accounts)?

Answer 67

1 business day

Question 68

Within how many does must a carrying firm complete the transfer of accounts?

Answer 68

within 3 business days

Question 69

What does the carrying firm do to open orders, limit orders, and stops for account that are being transferred?

Answer 69

They are canceled.

Question 70

Option positions are not transferred if they expire within how many days?

Answer 70

7 business days

Question 71

When are bulk transfers ok?

Answer 71

with a positive affirmation letter

Question 72

How many days do you have to settle/resolve an disputes over position or money balances?

Answer 72

5 business days

Question 73

B/Ds can hold customer mail for how long if the customer is traveling in the US?

Answer 73

60 days

Question 74

B/Ds can hold customer mail for how long if the customer is traveling outside the US?

Answer 74

90 days

Question 75

Regulation S-P is a re-write of Gram Leach Blily? What does it say?

Answer 75

Firms must adopt policies and procedures to address the protection of non-public information.

Question 76

When and how often are privacy notices required to be given to customers?

Answer 76

1) at account opening 2) annually to customers with an ongoing relationship

Question 77

When is an initial notice the only requirement of the privacy act?

Answer 77

For a consumer (not a customer) who obtains a product or service but has no further contact with the firm

Question 78

Opt out methods must be easy. What does that mean?

Answer 78

firms must provide a 1-800 number or a pre-paid post card

Question 79

A B/D is prohibited from using eligibility information from an affiliate company to solicit a prospect unless what?

Answer 79

1) it is disclosed 2) customers may opt out of receiving solicitations

Question 80

A birth certificate can be used to verify identity. True or False

Answer 80

False

Question 81

A durable power of attorney survives incapacitation. True or False

Answer 81

True

Question 82

A limited power of attorney allows a third party to trade in the account. True or False

Answer 82

True

Question 83

A limited power of attorney ceases at death. True or False

Answer 83

True

Question 84

Who regulates the extension of credit in the securities industry (margin accounts).

Answer 84

The Federal Reserve Board

Question 85

Regulation T - what is the initial requirement for non-exempt securities

Answer 85

50% - cash 50% fully paid securities 100%

Question 86

Which does customers receive a risk disclosure statement

Answer 86

At account opening and annually thereafter

Question 87

Corporation accounts survive death of a corporate officer. What happens to partnerships on the death of one of the partners?

Answer 87

They dissolve. You must freeze the account and cancel open trades

Question 88

Fee based accounts are not appropriate for what type of customers?

Answer 88

buy and hold customers

Question 89

Fee based accounts require a separate disclosure that says whay?

Answer 89

fees may not be reasonable

Question 90

On a DPP roll up, how many days tender offer?

Answer 90

60

Question 91

What is normal tender offer days?

Answer 91

20

Question 92

Frequent review of discretionary accounts is required. What is frequent?

Answer 92

at least quarterly

Question 93

Discretionary accounts are review frequently (at least quarterly.) What are they looking for?

Answer 93

unsuitable trades and churning

Question 94

If an order ticket indicates it was sold long, what is required?

Answer 94

to know where the certificates are located

Question 95

Disclosure of markup or markdown in exchange traded stocks is required when what?

Answer 95

1) acting as a dealer 2) riskless principal transaction

Question 96

Notification of free credit balances is required how often?

Answer 96

at least quarterly

Question 97

Can a birth certificate be used to validate a customer's identity?

Answer 97

no

Question 98

Uses of SMA: what is the borrowing power ratio?

Answer 98

1:1

Question 99

Uses of SMA. What is the buying power ratio?

Answer 99

2:1

Question 100

To what level could market fall to put the account a minimum equity?

Answer 100

to compute - debit balance divided by .75

Question 101

If selling securities in a restricted account, 50% of the proceeds must what?

Answer 101

retained in the account to reduce debit

Question 102

What is excess margin securities?

Answer 102

more than 140% of customer debit balance

Question 103

What does Reg X refer to?

Answer 103

margin credit obtained outside the US

Question 104

What is a pattern day traders?

Answer 104

four or more trades in a 5- business day period

Question 105

Which is not required for a margin account? 1) loan consent agreement 2) new acccount form 3) credit agreement 4) hypothecation form

Answer 105

loan consent agreement

Question 106

what is the minimum required deposit in a margin account?

Answer 106

$2,000

Question 107

If a customer is approved for writing uncovered options, they are also approved for what?

Answer 107

margin account

Question 108

In a margin account, customers must receive and acknowledge a risk dislcosure statement when?

Answer 108

at or prior to the initial transaction