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Series 9 - Self Study 2021 > Account Supervision And Regulatory > Flashcards

Account Supervision And Regulatory Flashcards

1
Q

ROP

A

Series 4 registered; performs all functions of BOM plus supervision.

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2
Q

BOM

A

Branch office manager; series 9/10 registered; unqualified for account supervision

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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

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4
Q

Independent Identity Verification

A

Equifax; since Oct 2003

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5
Q

Additional suitability info

A 
Financial situation
Financial needs
Marital status/ number of dependents
Net Worth
Liquid Net Worth
Annual income
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6
Q

Options disclosure document given…

A

Prior to account approval

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7
Q

Signed options agreement must be returned w/in ___ days after account opening

A

15

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8
Q

A resident ROP or BOM is required with ___ or more registered reps

A

4

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9
Q

Office with >4 registered reps requires…

A

A resident ROP/BOM

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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

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11
Q

SEC Rule 17a-3

A

Governs required records and containing information (Name, address, SSN, etc…)

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12
Q

New account info provided to client w/in ____ days

A

30

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13
Q

Reconfirm account info every ____ months

A

36

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14
Q

Limited trading authority

A

Can enter Buy/Sell order but NOT withdraw funds

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15
Q

“Discretionary” Trade

A

If, Size and/or security are chosen

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16
Q

Verbal authority for time and price discretion

A

Good for that day and only the specific security and size

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17
Q

Trade confirms delivered “promptly” means…

A

Delivered the day following transactions

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18
Q

Principal must approve discretionary trades ________

A

“Promptly” or by the end of each trading day

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19
Q

Discretionary orders retained for ____ years

A

3

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20
Q

Supervision of Producing BOM

A

Must be performed by ROP senior to or “otherwise independent” of the BOM

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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
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22
Q

How often must an ROP rotate responsibilities for supervision over producing BOM?

A

2 years

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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.

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24
Q

What constitutes “sales literature”?

A

Delivering communications to 25 or more existing or prospective customers w/in 30 days

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25
Q

Up to how many people can you deliver communications to without requiring prior approval?

A

25; not considered sales literature below this number

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26
Q

When can an account statement be mailed quarterly?

A

If there are no trades

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27
Q

LOPR reported…

A

T+1

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28
Q

LOPR amendments reported…

A

T+5

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29
Q

B/D financial statements delivered to clients…

A

Semi-annually

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30
Q

Care-of communications delivery

A

Given in writing within the past 12 months

Or

Duplicate copies also provided to a client at a known address

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31
Q

Customer complaint Central file within ____ days of customer complaint

A

30; Must be centrally filed at principal business office w/in that period of time, after the complaint is received

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32
Q

Customer Complaint Information

A 
Name of complaintant
Date of complaint
Registered Rep Name
Description
Record of action taken, if any
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33
Q

Must retain copy of complaint for at least ___ years

A

3; under CBOE rules

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34
Q

Signatures for transfers must be…

A

Medallion signature guaranteed

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35
Q

Carrying firm confirms holdings w/in ___ business day(s)

A

1

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36
Q

Transfer of account completed within ___ business days of verification

A

3

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37
Q

Options positions with

A

7

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38
Q

OCC requires account transfer instructions from…

A

Both carrying and receiving firms

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39
Q

Exempt securities from margin limits by Federal Reserve Board

A

US Govt
Agency
Municipal
Commercial Paper

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40
Q

Non-exempt securities from Fed margin limits

A

Corporate Stock, bonds and options

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41
Q

Two levels of Margin Regulation

A

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)

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42
Q

New issues not marginable for ___ days after issuance

A

30

43
Q

Securities which are NOT marginable:

A
  • Non-marketable securities
  • OTC issues included in Margin List
  • New issues for first 30 days after issuance
44
Q

3 types of accounts under Reg T

A

Cash
Margin
Arbitrage

45
Q

Payment for transactions in Cash account received by…

A

Regular settlement T+2; T+1 for options

** “Exceptional” circumstance: Absolutely no later than T+4; T+3 for options**

46
Q

Exceptional circumstance settlements

A

No later than T+4; T+3 for options if cash is not delivered by regular way settlement.

47
Q

If client does not meet delivery of cash by “exceptional” circumstances dates

A

Position is liquidated and account is frozen for 90 days

48
Q

Trading violation account freeze may last for ___ days

A

90

49
Q

Initial Margin on stock

A

Long - 50%; Short - 50% of market value

50
Q

Initial margin on Stock Option

A

Long - 100% of premium; Short - 20% of underlying market value

51
Q

Initial margin on LEAPs

A

Long- 75% of premium until 9 months to expiration then 100%; Short - Same as stock option 20% of underlying market value

52
Q

Initial margin Broad Based Index Options

A

Long - 100% of premiums; Short - 15% of market value of index

53
Q

Initial Margin on Broad Based Index LEAPs

A

Long - 75% of premium until 9 months to expiry, then 100%; Short - 15% of market value of index

54
Q

Initial margin on Narrow-based Index Option

A

Long - 100% of premium; Short - 20% of market value of index

55
Q

Initial margin on interest rate option

A

Long - 100% of premium; Short - 10% of underlying market value

56
Q

Initial margin on Forex option

A

Long - 100% of premium; Short - 4% of underlying market value

57
Q

Naked Writing Margin Deposit

A

100% of premium reduced by any “out of the money” amount

58
Q

Margin for options traded on T-bulls and T-bonds

A

Based on face (par) value, not market value

59
Q

Option strategies only allowed in Margin

A
  • Writing naked calls or puts

- Spread positions

60
Q

Minimum Maintenance Requirement to Open Long/short Account

A

$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
Q

Maintenance requirement on Stock

A

Long - 25%; Short - 30%

62
Q

Maintenance requirement for Options

A

Long - 100% premium; Short - 10% of underlying market value

63
Q

Maintenance requirements of LEAPs

A

Long - 75% of premium until 9 months to expiration then 100%; Short - value of underlying, plus premium

64
Q

Maintenance requirement for short Interest Rate Options

A

5% of underlying market value, plus premium

65
Q

Maintenance requirement for Forex Options

A

0.75% of underlying market value, plus premium

66
Q

Minimum equity for pattern day trading accounts

A

Greater of $25,000 or 25% of intra-day high market value

67
Q

Portfolio Margin

A

Est. 2007 by SEC, risk-adjusted requirements given to sophisticated investors w/ minimum $100,000 equity

68
Q

Pattern Day Trader definition

A

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
Q

Margin deficiencies for pattern day trading must be met within ____

A

T+5 or five business days after trade

70
Q

Margin on Long Options

A

Always must deposit 100% of premium in cash; unless LEAPs, 75% over 9 months to expiry.

71
Q

Covered Call limits on Margin

A

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
Q

How to cover sale of stock call options

A
  • 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
Q

Short put covered by…

A
  • 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
Q

Margin Deposit on Spreads

A

Always the Maximum potential Loss for the position

75
Q

Portfolio margin covers

A

Options Portfolios
Stock Portfolios hedged by Options

Expanded later by SEC: Equity portfolios

76
Q

Portfolio Margin Equity Minimums

A

Individual: $100,000

Prime Brokerage: $500,000

Accounts carrying unlisted derivatives or Day Trading: $5,000,000

77
Q

Portfolio margin Equity minimum for Individuals

A

$100,000

78
Q

Portfolio Margin Equity minimum for Prime Brokerage

A

$500,000

79
Q

Portfolio Margin Equity Minimum for Day Traders or Unlisted Derivative Portfolios

A

$5,000,000

80
Q

Portfolio Margin deficiencies must be met within ___ business days

A

3

This is different from pattern day trading at 5 days

81
Q

Margin requirements on Leveraged ETFs

A

FINRA determines margin should be proportionate to leverage.

I.e. levered 200% = 2x margin requirement

82
Q

Short sales holding period (taxation)

A

Technically does not exist for tax purposes

83
Q

SEC Rule 135 and 135a

A

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
Q

SEC Rule 15c3-5

A

Governing Market Access; Any institutional trader with direct access to markets through algo trading must submit “pre-trade risk check” order.

85
Q

Pre-Trade Risk Check

A

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
Q

SEC Rule 145

A

Governs registration of corporations under reorganization

87
Q

Corporations that must register under SEC 145

A
  • 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
Q

Exempt reclassifications from SEC Rule 145

A

Stock splits, reverse splits, changes in par value

89
Q

Section 9(a) - Securities and Exchange Act of 1934

A

Details a wide range of manipulative or deceptive trading practices prohibited by SEC.

90
Q

Section 9(a)-1

A

Prohibits false or misleading transaction; “wash transactions”

91
Q

Section 9(a)-2

A

Prohibits “trading pools” or related persons trading in-concert to effectively raise or lower market prices

92
Q

Section 9(a)-3

A

Prohibits dissemination of information expressly with the intent of moving market prices

93
Q

Section 9(a)-4

A

Prohibits false or misleading statements designed to induce purchase or sale of security

94
Q

Section 9(a)-5

A

Prohibits paying another individual or entity to purchase or sell a security

95
Q

Section 9(a)-6

A

Prohibits fixing or stabilizing price of an issue

96
Q

Painting the tape

A

Entity, individual or group acting in concert that engages in erroneous trading activity to give the appearance of trading activity

97
Q

Capping

A

Holding outstanding short call position and shorting the underlying to prevent the price from going above the short call strike price

98
Q

Supporting

A

Opposite of capping, hold short puts and buy the stock so that the market price does not fall below put strike

99
Q

Pegging

A

Similar to supporting or capping and can employ straddles or purchase or short sales of stock to maintain a certain market price

100
Q

Front Running

A

Placing a personal order ahead of a known large institutional order for personal gain. Can take the buy or sell side.

101
Q

Spoofing

A

Creating bogus bid or ask to manipulate trading and price action.

102
Q

Law Suits statute of limitations

A

Suit must be brought to court within 2 years after discovery and 5 years after Violation

“2 and 5” rule

103
Q

2 and 5 rule

A

Statute of limitations for investor law suits. Suit must be brought to court within 2 years from discovery and 5 years from violation

Series 9 - Self Study 2021 (3 decks)

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