Accounting Opening & Maintenance Flashcards
Examples of self-regulatory organizations
- The New York Stock Exchange
- Chicago Board of Trade
- American Council of Life Insurers
- Financial Industry Regulatory Authority, Inc
- Fixed Income Clearing Corporation
- Options Clearing Corporation
- American Institute of Certified Public Accounts
Types of customer accounts
Retail
Institutional
Prime Brokerage Customer
Retail Account
There are two options for individual investors to gain access to the markets:
- Individual trading accounts
- Through managed, pooled accounts such as a mutual fund or a hedge fund
Institutional Account
Any account opened by a bank, savings and loan, insurance company, or registered investment company; an investment advisor registered either with the SEC or with a state; or any corporation, trust, natural person, et cetera, with total assets of at least $50 million
Examples of Institutional Investors
Insurance companies Pension funds Endowments Venture capital firms Private equity firms Employee stock option plans
Prime brokerage account
An account where a customer selects a member firm (the prime broker) to provide custody and other services, while other firms (the executing brokers) handle all trades placed by the customer
Under SEC rules, must maintain a minimum of $500,000 in equity in the account
Transfer on Death (TOD)
A type of individual (or JTWROS) account registration where the account holder designates a specific beneficiary or beneficiaries to receive the assets in the account upon the holder’s death. No special legal documentation is necessary and the assets pass without going through probate
Tenants in Common (TIC)
A form of joint ownership of an account whereby a deceased tenant’s fractional interest in the account is retained by his estate
Joint tenants with right of survivorship (JTWROS)
A form of joint ownership of an account whereby a deceased tenant’s fractional interest in the account passes to the surviving tenant(s)
Joint Accounts
Two or more adults are named on the account as co-owners.
In addition to the new account form, a joint account agreement must be signed, and the account must be designated as either TIC or JTWROS
Corporate Account
An account held in a corporation’s name specifying which officers are authorized to trade in the account. A corporation must provide a copy of its charter and bylaws authorizing a margin account
A registered representative who opens a corporate account must establish:
- The business’s legal right to open an investment account
- An indication of any limitations that the owners, the stockholders, a court, or any other entity has placed on the securities in which the business can invest and
- Who will represent the business in transactions I’m loving the account
Partnership Account
Empowers individual members to act on behalf of the partnership as a whole
Fiduciary
A person authorized, in good faith, to hold assets for another person and manage those assets for the benefit of that person
Custodial Account
An account in which a custodian enters trades on behalf of the beneficial owner, who is often a minor. A custodian cannot delegate away fiduciary responsibility but can grant trading authority and investment decisions to a qualified third party
Custodian
An institution or person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another.
For example, mutual funds have custodians responsible for safeguarding certificates and performing clerical duties
Power of Attorney
A written authorization to represent or act on another’s behalf
Two types: Full and Limited
Full POA
A full power of attorney allows someone who is not the account owner to
- deposit or withdraw cash or securities, and
- Make investment decisions for the account owner
Limited POA
Allows the entering of buy and sell orders but no withdrawal of assets
Discretionary Account
An account in which the principal (beneficial owner) has given the registered representative authority to enter transactions at the representative’s discretion.
The registered representative may, if so directed by the customer, use the discretion about price (buy or sell), time, and choice of securities (bought or sold)
Discretionary Order
An order entered by a registered representative for a discretionary account allowing use of the representative’s judgment on the customer’s behalf, with respect to the choice of security, quantity of security, and/or whether the transaction should be a purchase or sale
Regulation of discretionary accounts
- each discretionary order must be identified on the order ticket
- an officer or a partner of the brokerage house must approve each order promptly
- a record must be kept of all transactions
- no excessive trading, or churning, may occur in the account relative to the size of the account and the customer’s investment objectives
- to safeguard against the possibility of churning, a designated supervisor or manager must review all trading activity frequently and systematically
Non conventional investments
Alternative investments that do not fit a common category Examples: - Hedge funds - Distressed debt - Equity-linked Notes
Identifying a discretionary order
An order is discretionary if any one of the three A’s is missing:
- Activity (whether to buy or sell)
- Amount (number of shares to buy or sell)
- Asset (the security to buy or sell)
