Account Supervision And Regulatory Flashcards
(103 cards)
1
Q
ROP
A
Series 4 registered; performs all functions of BOM plus supervision.
2
Q
BOM
A
Branch office manager; series 9/10 registered; unqualified for account supervision
3
Q
Required New Account information
A
Name Address Telephone DOB SSN/TIN (W-9 or 8) Customer Occupation Employment status Name of employer
Signature NOT required on new account form, but is required on options agreement
4
Q
Independent Identity Verification
A
Equifax; since Oct 2003
5
Q
Additional suitability info
A
Financial situation Financial needs Marital status/ number of dependents Net Worth Liquid Net Worth Annual income
6
Q
Options disclosure document given…
A
Prior to account approval
7
Q
Signed options agreement must be returned w/in ___ days after account opening
A
15
8
Q
A resident ROP or BOM is required with ___ or more registered reps
A
4
9
Q
Office with >4 registered reps requires…
A
A resident ROP/BOM
10
Q
Professional Customer
A
Average +390 orders/day for own accounts. Granted “W” marker for aggregating trades and discount from 3-25% on CBOE fees
11
Q
SEC Rule 17a-3
A
Governs required records and containing information (Name, address, SSN, etc…)
12
Q
New account info provided to client w/in ____ days
A
30
13
Q
Reconfirm account info every ____ months
A
36
14
Q
Limited trading authority
A
Can enter Buy/Sell order but NOT withdraw funds
15
Q
“Discretionary” Trade
A
If, Size and/or security are chosen
16
Q
Verbal authority for time and price discretion
A
Good for that day and only the specific security and size
17
Q
Trade confirms delivered “promptly” means…
A
Delivered the day following transactions
18
Q
Principal must approve discretionary trades ________
A
“Promptly” or by the end of each trading day
19
Q
Discretionary orders retained for ____ years
A
3
20
Q
Supervision of Producing BOM
A
Must be performed by ROP senior to or “otherwise independent” of the BOM
21
Q
Features of “Otherwise Independent” ROP, when supervising producing BOM:
A
- Situated in an office other than producing manager
- must NOT have supervisory responsibility over the activity being reviewed
- Alternates responsibility with another qualified person every 2 years
22
Q
How often must an ROP rotate responsibilities for supervision over producing BOM?
A
2 years
23
Q
Keep copies of _________ and ___ months of prior customer statements
A
New account form and 6 months statements; must be kept at both resident office and supervisory office where ROP sits.
24
Q
What constitutes “sales literature”?
A
Delivering communications to 25 or more existing or prospective customers w/in 30 days
25
Up to how many people can you deliver communications to without requiring prior approval?
25; not considered sales literature below this number
26
When can an account statement be mailed quarterly?
If there are no trades
27
LOPR reported…
T+1
28
LOPR amendments reported…
T+5
29
B/D financial statements delivered to clients…
Semi-annually
30
Care-of communications delivery
Given in writing within the past 12 months
Or
Duplicate copies also provided to a client at a known address
31
Customer complaint Central file within ____ days of customer complaint
30; Must be centrally filed at principal business office w/in that period of time, after the complaint is received
32
Customer Complaint Information
```
Name of complaintant
Date of complaint
Registered Rep Name
Description
Record of action taken, if any
```
33
Must retain copy of complaint for at least ___ years
3; under CBOE rules
34
Signatures for transfers must be…
Medallion signature guaranteed
35
Carrying firm confirms holdings w/in ___ business day(s)
1
36
Transfer of account completed within ___ business days of verification
3
37
Options positions with
7
38
OCC requires account transfer instructions from…
Both carrying and receiving firms
39
Exempt securities from margin limits by Federal Reserve Board
US Govt
Agency
Municipal
Commercial Paper
40
Non-exempt securities from Fed margin limits
Corporate Stock, bonds and options
41
Two levels of Margin Regulation
1) . Federal Reserve Board by Reg T; Securities Exchange Act of 1934
2) Exchanges regulate I.e. FINRA and CBOE with “minimum maintenance” rules (**uniform between all market regulators)
42
New issues not marginable for ___ days after issuance
30
43
Securities which are NOT marginable:
- Non-marketable securities
- OTC issues included in Margin List
- New issues for first 30 days after issuance
44
3 types of accounts under Reg T
Cash
Margin
Arbitrage
45
Payment for transactions in Cash account received by…
Regular settlement T+2; T+1 for options
** “Exceptional” circumstance: Absolutely no later than T+4; T+3 for options**
46
Exceptional circumstance settlements
No later than T+4; T+3 for options if cash is not delivered by regular way settlement.
47
If client does not meet delivery of cash by “exceptional” circumstances dates
Position is liquidated and account is frozen for 90 days
48
Trading violation account freeze may last for ___ days
90
49
Initial Margin on stock
Long - 50%; Short - 50% of market value
50
Initial margin on Stock Option
Long - 100% of premium; Short - 20% of underlying market value
51
Initial margin on LEAPs
Long- 75% of premium until 9 months to expiration then 100%; Short - Same as stock option 20% of underlying market value
52
Initial margin Broad Based Index Options
Long - 100% of premiums; Short - 15% of market value of index
53
Initial Margin on Broad Based Index LEAPs
Long - 75% of premium until 9 months to expiry, then 100%; Short - 15% of market value of index
54
Initial margin on Narrow-based Index Option
Long - 100% of premium; Short - 20% of market value of index
55
Initial margin on interest rate option
Long - 100% of premium; Short - 10% of underlying market value
56
Initial margin on Forex option
Long - 100% of premium; Short - 4% of underlying market value
57
Naked Writing Margin Deposit
100% of premium reduced by any “out of the money” amount
58
Margin for options traded on T-bulls and T-bonds
Based on face (par) value, not market value
59
Option strategies only allowed in Margin
- Writing naked calls or puts
| - Spread positions
60
Minimum Maintenance Requirement to Open Long/short Account
$2,000; even if Reg T is lower, you must meet this requirement up to the full cost of the security (long account)
**Short accounts must ALWAYS have at least $2000 equity.
61
Maintenance requirement on Stock
Long - 25%; Short - 30%
62
Maintenance requirement for Options
Long - 100% premium; Short - 10% of underlying market value
63
Maintenance requirements of LEAPs
Long - 75% of premium until 9 months to expiration then 100%; Short - value of underlying, plus premium
64
Maintenance requirement for short Interest Rate Options
5% of underlying market value, plus premium
65
Maintenance requirement for Forex Options
0.75% of underlying market value, plus premium
66
Minimum equity for pattern day trading accounts
Greater of $25,000 or 25% of intra-day high market value
67
Portfolio Margin
Est. 2007 by SEC, risk-adjusted requirements given to sophisticated investors w/ minimum $100,000 equity
68
Pattern Day Trader definition
Someone who does 4 or more day trades in 5 business day period or less
“Day Trade” is trade placed and closed in the same day.
69
Margin deficiencies for pattern day trading must be met within ____
T+5 or five business days after trade
70
Margin on Long Options
Always must deposit 100% of premium in cash; unless LEAPs, 75% over 9 months to expiry.
71
Covered Call limits on Margin
With covered calls, the Strike of the written call is the maximum value of the underlying stock held.
I.e. 100 shs of stock valued at $42/sh, short calls strike is $40/sh. The release by Reg T is on $40, NOT $42. 50% x $4000 = $2000 margin release
72
How to cover sale of stock call options
- Deposit underlying stock
- Deposit convertible of underlying stock
- Deposit long call option with same strike or lower
- Deposit of escrow receipt from bank holding underlying stock
73
Short put covered by…
- Short stock position
- deposit of cash
- bank guarantee letter
- Deposit of T-bills
- Deposit of long put option with same or higher strike and same expiration date or later
74
Margin Deposit on Spreads
Always the Maximum potential Loss for the position
75
Portfolio margin covers
Options Portfolios
Stock Portfolios hedged by Options
Expanded later by SEC: Equity portfolios
76
Portfolio Margin Equity Minimums
Individual: $100,000
Prime Brokerage: $500,000
Accounts carrying unlisted derivatives or Day Trading: $5,000,000
77
Portfolio margin Equity minimum for Individuals
$100,000
78
Portfolio Margin Equity minimum for Prime Brokerage
$500,000
79
Portfolio Margin Equity Minimum for Day Traders or Unlisted Derivative Portfolios
$5,000,000
80
Portfolio Margin deficiencies must be met within ___ business days
3
**This is different from pattern day trading at 5 days**
81
Margin requirements on Leveraged ETFs
FINRA determines margin should be proportionate to leverage.
I.e. levered 200% = 2x margin requirement
82
Short sales holding period (taxation)
Technically does not exist for tax purposes
83
SEC Rule 135 and 135a
Options Advertising; can only contain:
- General description of security
- Description of the nature and function of options market
- Description of OCC operations
- invitation to inquire further with name and address of sponsoring B/D
84
SEC Rule 15c3-5
Governing Market Access; Any institutional trader with direct access to markets through algo trading must submit “pre-trade risk check” order.
85
Pre-Trade Risk Check
Established by SEC Rule 15c3-5; blocks trades that:
- exceed pre-set credit or capital thresholds
- are erroneous
- are not in compliance with regulatory requirements
- are for securities that customer is restricted from trading
86
SEC Rule 145
Governs registration of corporations under reorganization
87
Corporations that must register under SEC 145
- Reorganization involving substitution of one security for another
- Merger or Consolidation in which existing securities will be exchanged for new entity securities
- A transfer of assets from one person to another in consideration for the issuance of a new security
88
Exempt reclassifications from SEC Rule 145
Stock splits, reverse splits, changes in par value
89
Section 9(a) - Securities and Exchange Act of 1934
Details a wide range of manipulative or deceptive trading practices prohibited by SEC.
90
Section 9(a)-1
Prohibits false or misleading transaction; “wash transactions”
91
Section 9(a)-2
Prohibits “trading pools” or related persons trading in-concert to effectively raise or lower market prices
92
Section 9(a)-3
Prohibits dissemination of information expressly with the intent of moving market prices
93
Section 9(a)-4
Prohibits false or misleading statements designed to induce purchase or sale of security
94
Section 9(a)-5
Prohibits paying another individual or entity to purchase or sell a security
95
Section 9(a)-6
Prohibits fixing or stabilizing price of an issue
96
Painting the tape
Entity, individual or group acting in concert that engages in erroneous trading activity to give the appearance of trading activity
97
Capping
Holding outstanding short call position and shorting the underlying to prevent the price from going above the short call strike price
98
Supporting
Opposite of capping, hold short puts and buy the stock so that the market price does not fall below put strike
99
Pegging
Similar to supporting or capping and can employ straddles or purchase or short sales of stock to maintain a certain market price
100
Front Running
Placing a personal order ahead of a known large institutional order for personal gain. Can take the buy or sell side.
101
Spoofing
Creating bogus bid or ask to manipulate trading and price action.
102
Law Suits statute of limitations
Suit must be brought to court within 2 years after discovery and 5 years after Violation
“2 and 5” rule
103
2 and 5 rule
Statute of limitations for investor law suits. Suit must be brought to court within 2 years from discovery and 5 years from violation
