Ch 14 Operations Flashcards
If a client wants to transfer an account containing a non-transferable asset, what is the carrying firm’s obligation?
Notify the client and give her the option to maintain the asset in an account or dispose of the asset.
Where do member firms keep written complaints including the original copy, the firm’s response, and other action taken?
At an office of supervisory jurisdiction (OSJ).
To assist in settlement and clearance, all FINRA members must also be members of a _____________ and the ____.
To assist in clearance and settlement, all FINRA members must also be members of a clearing corp. and the DTC.
Who is qualified to endorse a mutilated certificate or coupon?
The issuer or one of its agents (transfer or paying agent or trustee).
Assuming regular-way settlement, if a trade occurs on or after the ex-dividend date, who receives the dividend?
Assuming regular-way settlement, if a trade occurs on or after the ex-dividend date, the seller receives the dividend.
True or False: Completion of a transaction occurs immediately after a client enters her trade.
FALSE
For a buyer to be eligible for a stock’s cash dividend, the purchase must be made prior to the ______________ date.
For a buyer to be eligible for a stock’s cash dividend, the purchase must be made prior to the ex-dividend date.
The minimum equity for an investment adviser utilizing a prime-brokerage relationship is $_________.
The minimum equity for an investment adviser utilizing a prime-brokerage relationship is $100,000.
If a buy-in or sell-out is completed, who is responsible for a potential money difference?
The failing BD.
What method of handling assets registers shares in a client’s name and delivers them to the client in certificate form?
Transfer and ship.
What details are covered by a clearing agreement?
Opening/approval of accounts, sending confirmation/statements, and receipt/delivery of funds and securities.
When a request to transfer an account is received, how long does the firm have to validate or protest the transfer?
1 business day.
True or False: A hedge fund is an example of a client that may benefit from a prime-brokerage arrangement.
TRUE
True or False: On a stock’s ex-dividend date, certain types of orders are reduced.
True. Both buy limit and sell stop orders for the stock are reduced.
When is the ex-dividend date?
The ex-dividend date is on the same day as the record date.
If a written complaint is received from a customer, what must be kept in the firm’s complaint file?
The original complaint, the firm’s response, as well as any action taken.
True or False: For a DVP transaction, the client’s agent (bank) must be informed of the transaction details.
TRUE
If a selling client fails to deliver the securities within 10 business days following settlement, what may the BD do?
The BD may immediately buy in the client to close out the trade.
A DVP transaction must be completed within ____ calendar days.
A DVP transaction must be completed within 35 calendar days.
True or False: In an RVP transaction, payment is made to a client when the securities are received and accepted.
TRUE
True or False: The ex-dividend date is on the same date as the record date.
TRUE
If validating a transfer, what restrictions does the carrying firm place on the account?
The account is frozen, open orders are cancelled, and no new orders are accepted.
If a client’s account contains non-transferable assets, what two choices is she offered as an alternative to transfer?
Liquidation (with payment made within five business days) or retaining the assets with the carrying BD.
_______________ following the trade date is settlement for trades of U.S. Government securities or option contracts.
1 business day (T+1) following the trade date is settlement for trades of U.S. Government securities or option contracts.
True or False: An account transfer may be rejected due to an invalid Social Security number.
TRUE
By what date must a buyer own stock to be entitled to a dividend or stock split?
The record date.
How many business days is a carrying BD given to validate/protest a transfer, and if validated, to complete it?
Carrying BDs have one business day to validate/protest; and if validated, three business days to complete it.
If a fail-to-deliver or fail-to-receive occurs, which party to the trade is responsible for a money difference?
The party that caused the failure.
True or False: The issuing corporation determines the declaration, payment, record, and ex-dividend dates.
False. Exchange rules determine the ex-dividend date based on the corporation’s determination of the record date.
True or False: A client of a BD may be subject to a close-out for failing to deliver securities that have been sold.
TRUE
A company must notify FINRA of an upcoming dividend or stock split ____ days prior to the record date.
A company must notify FINRA of an upcoming dividend or stock split 10 days prior to the record date.
True or False: A valid reason to reject an ACATS transfer includes the fact that the account is the firm’s largest.
FALSE
Explain the transfer and ship method of handling customer assets.
The shares are registered in the client’s name and delivered to the client in certificate form.
Upon receipt, to whom are written complaints forwarded?
A supervising principal.
If a non-transferable asset is sold, the carrying BD has _____ business days to pay the client.
If a non-transferable asset is sold, the carrying BD has five business days to pay the client.
If a stock is sold before the ex-dividend date, but not delivered by the record date, what must be attached?
A due bill.
Upon validation of a transfer, the transfer must be completed within ___ business days.
Upon validation of a transfer, the transfer must be completed within 3 business days.
By what date must a clearing firm send to the introducing firm the list of all reports that it can generate?
By July 1st. Thereafter, the introducing firm may request any of the reports listed.
True or False: An ACATS transfer may be cancelled by the client.
True, provided a written request is made by the client.
Based on written request, what is the maximum period that a B/D may hold customer correspondence?
Three months. To exceed three months, the customer must provide the B/D with a valid reason for the request.
When is settlement for a transaction that’s using a seller’s option settlement?
On a date that’s agreed on by both parties, but not earlier than two business days after the trade date.
Based on written instructions, a B/D may hold customer correspondence for _____ months.
Based on written instructions, a B/D may hold customer correspondence for three months.
What specialized services does a prime broker offer to its clients?
Custody, securities lending, margin financing, clearing, processing, research, customized reporting.
Explain a delivery versus payment (DVP) or collect on delivery (COD) transaction.
A situation whereby delivery of securities are made to the buying client’s agent (bank) in exchange for payment.
Before accepting a DVP or RVP order, a BD must receive the name of the client’s ______ and the client’s ______________.
Before accepting a DVP or RVP order, a BD must receive the name of the client’s agent and the client’s account number.
Who determines settlement on a when issued transaction?
FINRA’s Uniform Practice Code Committee.
XYZ’s record date is Tuesday, May 3. With a regular-way trade, when could a person sell her stock and keep the dividend?
On Tuesday, May 3 or later. She must be the owner of record at least through May 3 to keep the dividend.
To avoid a close-out, a selling client must deliver the securities to the BD within how many days from settlement?
10 business days.
Give some examples of non-transferable assets.
Carrying firm proprietary assets, LP interests in retail account, products of third party not connected to receiving BD.
What may a carrying firm do when transfers arise as a result of RRs switching firms and taking clients?
Attempt to convince the clients to stay.
True or False: Through the use of a prime broker, executing BDs are prevented from determining a client’s strategy.
TRUE
Notice of a buy-in may not be delivered to the seller sooner than ____ business day after settlement.
Notice of a buy-in may not be delivered to the seller sooner than 1 business day after settlement.
What services does the Depository Trust and Clearing Corporation (DTCC) provide to its members?
Clearing, settlement, and information services.
What is the benefit of ACATS?
It replaces a manual account transfer system with a fully automated and standardized one.
List some acceptable reasons for protesting an account transfer.
The account is flat with no assets, invalid signature or account number, additional documentation required, no SS number.
Whose authentication is acceptable for mutilated securities?
The transfer agent, registrar, trustee, or issuer.
Trades involving corporate and municipal securities settle by the _______________ day following the trade date (T + __).
Trades involving corporate and municipal securities settle by the first business day following the trade date (T + 1).
What would cause a potential sell-out?
A buying BD failing to accept delivery of securities on the settlement date.
True or False: An introducing BD must provide clients with written notification regarding its clearing agreement.
TRUE
What would cause a potential buy-in?
A selling BD failing to deliver securities to the buying BD.
What type of transaction is being executed when a client purchases securities with payment made by a third party?
Delivery versus payment (DVP) or collect on delivery (COD).
True or False: Any type of client may use receipt versus payment (RVP) when selling securities to a BD.
True. However, RVP trades are most commonly used by institutional clients.
What entity is the parent of the National Securities Clearing Corporation (NSCC)?
The Depository Trust and Clearing Corporation (DTCC).
How are transactions completed among members of the DTCC?
Through computerized book entry.
True or False: An introducing BD is obligated to provide its clients with the detailed terms of its clearing agreement.
False. An introducing firm is only obligated to disclose the existence of an agreement.
When must a BD buy in the securities if a selling client fails to deliver securities?
No later than 10 business days from settlement of the transaction.
A BD may allow a selling client up to ____ business days from ___________ to deliver the securities before closing out.
A BD may allow a selling client up to 10 business days from settlement to deliver the securities before closing out.
Jim calls his RR to request that his account-related mail be held while he is on vacation. What is the correct response?
Until a written request is received, no action may be taken. Written, not verbal, instructions are required.
True or False: Continuous Net Settlement (CNS) allows for one check for purchases and one net delivery amount for sales.
TRUE
What are three different methods of handling customer assets?
Holding in street name, transfer and hold, and transfer and ship.
For reclamation purposes, whose responsibility is it to resolve the problem?
The delivering dealer must promptly deliver securities in good deliverable form.
True or False: Account transfers must be in whole.
False. Both full and partial transfers are acceptable.
True or False: In a DVP transaction, payment is made by a client’s agent when the securities are delivered and accepted.
TRUE
Explain a receipt versus payment (RVP) transaction.
A situation whereby payment on a trade is made when security delivery is received and accepted by selling client’s agent.
The minimum equity for a prime brokerage client is $_________.
The minimum equity for a prime brokerage client is $500,000.
True or False: Once an ACATS request is received, the carrying BD may continue to effect transactions in the account.
False. The account is frozen.
By what date must a clearing firm provide a list of available reports to the introducing broker (IB)?
No later than July 1 of each year.
To have a prime broker relationship, what amount of equity must a customer maintain?
$500,000 ($100,000 for an investment advisor).
Assuming regular-way settlement, if a trade occurs before the ex-dividend date, who receives the dividend?
Assuming regular-way settlement, if a trade occurs before the ex-dividend date, the buyer receives the dividend.
A buy-in cannot be initiated by the buyer until ____ business days following the settlement date.
A buy-in cannot be initiated by the buyer until two business days following the settlement date.
What must be noted by a client to prevent her buy limit and sell stop orders from being reduced on the ex-dividend date?
Do Not Reduce (DNR).
ABC sets a record date of Wednesday, Oct. 19. Would a buyer of ABC on Wednesday, Oct. 19 be entitled to the dividend?
No, the investor must own (trade settles) on or before the record date. This trade doesn’t settle until October 20.
If a discrepancy claim arises after the transfer, the carrying firm must resolve it within _____ business days.
If a discrepancy claim arises after the transfer, the carrying firm must resolve it within five business days.
A BD that holds a customer’s cash and securities is known as a ______________.
A BD that holds a customer’s cash and securities is known as a carrying firm.
Explain a prime-brokerage arrangement.
A situation in which multiple BDs execute a client’s trades and report them to one independent BD for settlement.
What is a BD required to obtain before accepting a customer’s DVP order to buy?
The name of the customer’s agent (bank).
After notification of the buy-in has been delivered, the actual buy-in may not occur for ____ business days.
After notification of the buy-in has been delivered, the actual buy-in may not occur for 2 business days.
What is a brokerage arrangement?
A situation in which multiple BDs execute a client’s trades and report them to one independent BD for settlement.
After notification of the buy-in has been delivered, the actual buy-in may not occur for how many business days?
After notification of the buy-in has been delivered, the actual buy-in may not occur for 2 business days.
True or False: For clients whose assets are in street name, proxy materials must be forwarded to the client.
True, provided the distributing corporation pays for the mailing expenses.
What securities use a settlement of one business day after the trade date?
Corporate stocks and bonds, U.S. government securities, options, and municipal securities.
If securities are in transit and are identified as such, the buy-in will be delayed for how many calendar days?
If securities are in transit and are identified as such, the buy-in will be delayed for seven calendar days.
Delivery vs. Payment (DVP) requires payment to be made no more than how many calendar days from the transaction?
Delivery vs. Payment (DVP) requires payment to be made no more than 35 calendar days from the transaction.
If using cash settlement, what is the last possible date to purchase a security and still be entitled to the dividend?
The record date, since cash settlement indicates same-day settlement.
When using the transfer and hold method of handling assets, securities must still be what?
When using the transfer and hold method of handling assets, securities must still be segregated.
True or False: On completion of a DVP/RVP transaction, the customer must receive a trade confirmation.
TRUE.
If non-transferable assets are being sold at the time of transfer, who discloses any surrender charges to the client?
The carrying (former) BD.
True or False: Disputes over money balances/security positions are an acceptable reason to dispute the transfer.
FALSE.
True or False: When the transfer and ship method of handling client assets is used, a fee may be charged.
TRUE.
