Ch8 Customer Protection

Question 1

Broker dealer with custody

Answer 1

SEC & state registration- follow federal rule

Customer Protection Rule re: custody
Securities Exchange Act of 1934

No commingling of client’s assets & firm’s assets- in case of BD failure

Question 2

Investment Advisor with custody (for state registered IAs if state permits)

Answer 2

NASAA Model Rule on Custody (state)

Notify Admin on Form ADV that they will have custody

Keep marked, and separated in separate bank accounts

Notify client where & how their securities or funds are being maintained

Quarterly report to clients (activity, location, value)

Annual surprise audit by an
independent CPA (registered with PCAOB)

IAs usually use a qualified custodian. If IA related person has authority to obtain possession from the custodian, then IA has custody

Question 3

Qualified custodian (for IAs)

Answer 3

FDIC insured bank
or
Broker dealer registered in that state plus with SEC

Custodian sends quarterly reports to clients with assets (on behalf of yhe IA)

Custodian subject to annual surprise audit by independent CPA
* * * * *
Note: if client’s or securities are received inadvertently, as long as they are RTS within 3bz days you aren’t considered to have custody