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Learn 7 > Chapter 02: Customer Accounts > Flashcards

Chapter 02: Customer Accounts Flashcards

1
Q

True or False: All corporate officers may effect transactions for the corporation.

A

False, only those named in the Corporate Resolution

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2
Q

True or False: In a DVP transaction, payment is made by a client’s agent when the securities are delivered and accepted.

A

True

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3
Q

Define pattern day trading.

A

Executing four or more day trades over a five-day period

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4
Q

What list must be checked to identify suspected terrorists and criminals?

A

OFAC List (Treasury Department’s Office of Foreign Assets Control)

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5
Q

For how long may a not held order be maintained?

A

A not held order is considered a day order.

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6
Q

A ___________________ is required to open an account for a partnership.

A

A Partnership Agreement is required to open an account for a partnership.

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7
Q

A situation in which multiple BDs execute a client’s trades and report them to one independent BD for settlement

A

Explain a prime-brokerage arrangement.

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8
Q

A pattern day trader is someone who executes _____ or more day trades over _____ consecutive business days.

A

A pattern day trader is someone who executes four or more day trades over five consecutive business days.

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9
Q

Individuals must register with the SEC within __________ of becoming an insider.

A

Individuals must register with the SEC within 10 days of becoming an insider.

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10
Q

True or False: A prime broker provides centralized clearing and custodial services, as well as consolidation of reports.

A

True. For margin customers, it also allows for the consolidation of positions resulting in lower interest costs.

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11
Q

When must customer confirmations be sent?

A

By the completion of the transaction (usually the settlement date)

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12
Q

When an individual reaches age ______, they may begin withdrawing from an IRA without penalty.

A

When an individual reaches age 59 1/2, they may begin withdrawing from an IRA without penalty.

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13
Q

When must IRA withdrawals begin in order to avoid the late withdrawal penalty?

A

By April 1st of the year after an individual turns the age of 73

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14
Q

What are some of the acceptable investments for IRA contributions?

A

Stocks, bonds, mutual funds, and CDs

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15
Q

A client executes seven day trades over a two-business-day period. Is this client a pattern day trader?

A

Yes. A pattern day trader executes four or more day trades over a five-day period.

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16
Q

May a wife enter trades in a husband’s account?

A

Yes, with written third-party authorization.

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17
Q

If an RR suspects that a client may be showing signs of dementia, what is the best course of action?

A

To request a meeting with both the client and a family member

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18
Q

What does it mean for a client to use a prime brokerage account?

A

The client trades through multiple BDs, but has its trades cleared and settled with one prime BD

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19
Q

True or False: Clients need not sign the account form for a cash account.

A

True, but signature would be required for an option or a margin account.

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20
Q

What happens to the deceased’s portion in a joint account with tenants-in-common?

A

The deceased’s portion goes to his estate for tax purposes.

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21
Q

What program must be established by BDs to verify the identity of each customer opening an account?

A

Customer Identification Program (CIP)

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22
Q

A client executes three day trades over a five-business-day period. Is this client a pattern day trader?

A

No. A pattern day trader executes four or more day trades over a five-day period.

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23
Q

Who may enter orders in a joint account?

A

Any owner named on the account

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24
Q

True or False: Not held orders may only be executed in a discretionary account.

A

False. Discretionary power of attorney is not required.

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25
Q

held orders can refer to

A

instructions given to a broker to execute a trade at a specific price or time, but the broker has not yet executed the order.

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26
Q

True or False: Principals must approve discretionary orders prior to entry.

A

False. The orders must be approved promptly afterward.

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27
Q

What items are acceptable as proof of identity under the Customer Identification Program (CIP)?

A

Passport or driver’s license (both have a picture)

28
Q

True or False: Money may be withdrawn from a joint account in one owner’s name.

A

False. Any checks should be in both parties’ names.

29
Q

Based on written instructions, a B/D may hold customer correspondence for _____ months.

A

Based on written instructions, a B/D may hold customer correspondence for three months.

30
Q

How are withdrawals from Roth IRAs treated for tax purposes?

A

Withdrawals are tax-free if the account is open for at least five years and is not considered an early withdrawal.

31
Q

What is ERISA?

A

Employee Retirement Income Security Act

32
Q

The __________ is the person who has fiduciary control over a trust.

A

The trustee is the person who has fiduciary control over a trust.

33
Q

If a client seems confused and demands an unsuitable change of objective, what step should an RR take?

A

Confusion and/or dementia are concerns that may warrant an RR to request a meeting with the client and a family member.

34
Q

Define an Insider

A

Officers, directors, partners, greater than 10% owners, and immediate family members of all listed

35
Q

The ___________________ must sign the account form.

A

The supervising principal must sign the account form (clients are not required to sign).

36
Q

Is discretionary authorization required to enter a not held order?

A

No, since discretion is limited to time and/or price for not held orders.

37
Q

True or False: FINRA regulates accounts of member firm employees opened at another firm.

A

True. The rule also covers accounts for the employee’s spouse or dependent children.

38
Q

What must be done by the carrying firm when opening an account for an employee of another Finra member firm?

A

The carrying firm must receive written consent from the employer

39
Q

List some of the information to be included on a municipal customer confirmation.

A

Description, price and yield (lower of YTM or YTC), BD capacity (commission for agency), trade and settlement dates

40
Q

Define vesting.

A

The right an employee gradually acquires by length of service at a company to receive employer-contributed benefits

“Work for years, under the company crest, Stay awhile, and your shares are vested. In time, these stocks become your own, That’s ‘vested’— a seed that has grown.”

41
Q

_____________________________ protects customers from BD bankruptcy.

A

Securities Investor Protection Corporation (SIPC) protects customers from BD bankruptcy.

42
Q

True or False: Names appearing on the OFAC List are customers who had a previous business relationship with the firm.

A

False. The list shows the names of suspected terrorists and criminals.

43
Q

True or False: RRs are always prohibited from sharing in a customer’s account.

A

False. RRs may share in a customer’s account if they have permission and sharing is proportionate to their investment.

44
Q

Who is responsible for determining the suitability of orders placed in a discretionary account?

A

The individual placing the order

45
Q

Anyone with __________ income may contribute to an IRA.

A

Anyone with earned income may contribute to an IRA.

46
Q

When must insiders report their transactions?

A

Within 2 business days of the trade

47
Q

Describe a wrap account.

A

An account that charges the client a single fee that covers transaction execution and account management

48
Q

List some retirement accounts that have required minimum disributions.

A

Required minimum distributions apply to traditional IRAs, 401(k), 457, and 403(b) plans.

49
Q

True or False: RRs are typically not permitted to lend money to a client.

A

True. While exceptions existing, personal loans to clients are typically prohibited.

50
Q

What are the benefits of setting up an irrevocable trust?

A

It will reduce estate taxes and also avoid probate.

51
Q

Churning is described as _____________________ designed to _____________________.

A

Churning is described as excessive trading designed to generate commissions.

52
Q

ERISA gave the U.S. Government jurisdiction over ___________________ plans.

A

private pension plans.

53
Q

For a joint account, how many account numbers and SSNs are used for tax reporting?

A

One

54
Q

Both the ____________ and the ____________ are required for a corporation to open an options or margin account.

A

Both the Corporate Resolution and Corporate Charter are required for a corporation to open an options or margin account.

55
Q

What specialized services does a prime broker offer to its clients?

A

Custody, securities lending, margin financing, clearing, processing, research, customized reporting

56
Q

True or False: Using a P.O. Box as an address is not acceptable to open an account.

A

True. An actual address is required; however, mail may be sent to a P.O. Box.

57
Q

What regulation protects the non-public personal information of customers?

A

Regulation S-P

58
Q

What is the benefit of establishing a revocable trust?

A

It avoids probate.

59
Q

RRs must examine what document to open any corporate account?

A

Corporate Resolution

60
Q

A BD that clears and settles trades effected by one or more executing brokers at the direction of the customer

A

A Prime Broker

61
Q

If a client refuses to provide certain information, may the account still be opened?

A

Yes, although name and address are required.

62
Q

What three items must be specified on a not held order?

A

Action (buy/sell), Amount (quantity), and Asset (security)

63
Q

What may an RR do with full discretion, but not with limited discretion?

A

Withdraw money from the account

64
Q

For accounts opened for employees of another member firm, what is provided to the individual’s employer upon request?

A

Duplicate confirmations and statements

65
Q

Within ___ days of becoming an insider, a person is required to report to the SEC on ______. And Insider is required to file a ______ to report any changes in his stock position by the _____ business day following the change

A

Within 10 days of becoming an insider, a person is required to report to the SEC on Form 3. An Insider is required to file a Form 4 to report any changes in his stock position by the 2nd business day following the change

66
Q

What does ERISA do?

A

ERISA’s the name, retirement’s the game,
Born in ‘74, protecting is its aim.
Sets standards for pensions, health plans, and more,
Safeguards your future, that’s the core.

In private sector, both big and small,
ERISA stands tall, it covers all.
Your benefits secured, sleep without fright,
ERISA’s on guard, day and night.

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