Chapter 02 : Sales Supervision - Customer Accounts Flashcards
If a customer changes his address, where and when must notification of the change be sent?
Notification must be sent to the customer’s old address within 30 days of the change.
May an RR and a client share in an account?
Yes, with firm approval and provided the sharing in gains and losses is proportionate to their investment.
True or False: Names appearing on the OFAC List are customers who had a previous business relationship with the firm.
False. The list shows the names of suspected terrorists and criminals.
May a custodian remove funds from a custodial account?
Yes, but only for the benefit of the minor.
______ power of attorney allows a person to buy or sell securities, transfer assets, or have check writing privileges.
Full power of attorney allows a person to buy or sell securities, transfer assets, or have check writing privileges.
The formula for determining equity in a short margin account is: ____________ - ____________ = Equity
The formula for determining equity in a short margin account is: Credit Balance - Short Market Value (SMV) = Equity
When a client dies, instructions will be provided by the _________________________.
When a client dies, instructions will be provided by the executor/administrator.
After receiving client authorization, whose written approval is required to exercise discretion in the client’s account?
A partner, officer, or other appropriately registered official of the member firm
The ________________ Agreement describes the customer’s pledging of securities as collateral to the BD.
The Hypothecation Agreement describes the customer’s pledging of securities as collateral to the BD.
Not held orders allow for what level of discretion?
Time and price of execution
Who may enter orders in a joint account?
Any owner named on the account
After a transfer request has been validated, the MSRB requires the transfer to be completed within ____ business days.
After a transfer request has been validated, the MSRB requires the transfer to be completed within three business days.
A client with $3,000 of SMA has buying power of $________.
A client with $3,000 of SMA has buying power of $6,000 (the SMA balance x 2).
Where will excess equity be recorded?
The Special Memorandum Account (SMA)
To open an account under the USA PATRIOT Act rules, is a client’s Social Security number a requested or required item?
Required
If owned for ____ days, open-end investment company (mutual fund) shares may be used as collateral in a margin account.
If owned for 30 days, open-end investment company (mutual fund) shares may be used as collateral in a margin account.
True or False: Money may be withdrawn from a joint account in one owner’s name.
False. Any checks should be in both parties’ names.
The formula for determining equity in a long margin account is: ____________ - __________ = Equity
The formula for determining equity in a long margin account is: Long Market Value (LMV) - Debit Balance = Equity
True or False: Customers are required to sign the Loan Consent Agreement.
False. Signing the agreement is optional.
True or False: If a stock is shorted and a dividend is declared, the short seller must pay the lender the dividend.
True
What is required for an account being opened for a client who wishes to engage in short selling stock?
(1) Principal’s signature and (2) client’s signature (since the activity requires a margin account)
Calculate SMA using the following balances: LMV $40,000, Debit $10,000 and Equity $30,000
Equity - 50% of the LMV = Excess Equity ($30,000 - $20,000 = $10,000)
What must be done if a client is too ill to manage his own affairs?
Obtain a court appointment naming someone to manage the account
May clients in TIC accounts have unequal interests?
Yes. Also, TIC accounts may have more than two account holders.
Where must SIPC membership be displayed?
In each branch and home office of the BD. Also, any retail communication must contain the SIPC logo.
A long margin account’s minimum initial equity requirement is _____% of the purchase or $______ , whichever is less.
A long margin account’s minimum initial equity requirement is 100% of the purchase or $2,000, whichever is less.
What is some of the important information to obtain when opening a new client’s account?
Name, address, age, occupation, SSN, citizenship, income, net worth, objectives, risk tolerance, investment experience
The industry minimum maintenance requirement for a short account is ____%.
The industry minimum maintenance requirement for a short account is 30%. (Equity must be at least 30% of SMV.)
List some of the risks associated with brokered CDs.
Call risk, interest rate risk, and limited liquidity
For a power of attorney to be effective, it must be signed by the ________ and accepted by _____________ of the firm.
For a power of attorney to be effective, it must be signed by the client and accepted by a principal of the firm.
What list must be checked to identify suspected terrorists and criminals?
OFAC List (Treasury Department’s Office of Foreign Assets Control)
What is the margin requirement when buying options?
100% of the premium
What is a TOD account?
An account in one person’s name that allows a beneficiary to gain control upon the account holder’s death.
What three items must be specified on a not held order?
Action (buy/sell), Amount (quantity), and Asset (security)
How is the account affected if SMA is withdrawn?
Debit balance increases and equity decreases.
What regulation protects the non-public personal information of customers?
Regulation S-P
True or False: Only one person must provide information to open a joint account.
False. Each owner must provide information to open a joint account.
What items are acceptable as proof of identity under the Customer Identification Program (CIP)?
Passport or driver’s license (both have a picture)
Custodial accounts are opened under whose Social Security number?
The minor’s
What is required for an agent to open a joint account with a customer?
Written approval of the client and the BD and any sharing must be proportionate to each person’s contribution.
What power of attorney remains in force despite the account owner becoming incompetent or incapacitated?
Durable power of attorney
What must be obtained for a firm to commingle the securities of two or more customers?
Written permission from each customer
Excess margin securities are those whose value exceeds _____% of the customer’s debit balance.
Excess margin securities are those whose value exceeds 140% of the customer’s debit balance.
What happens to the deceased’s portion in a joint account with tenants-in-common?
The deceased’s portion goes to his estate for tax purposes.
The ______________ agreement must be signed before a firm may lend stock belonging to a client.
The loan consent agreement must be signed before a firm may lend stock belonging to a client.
Describe a wrap account.
An account that charges the client a single fee that covers transaction execution and account management
What is the benefit of ACATS?
It replaces a manual account transfer system with a fully automated and standardized one.
True or False: SIPC provides coverage for market losses.
False. SIPC protects against BD bankruptcy.
A principal of a member firm must approve discretionary orders __________.
A principal of a member firm must approve discretionary orders promptly.
A certificate of incumbency is invalid if it is older than ___ days when initially presented.
A certificate of incumbency is invalid if it is older than 60 days when initially presented.
What happens to a pre-existing power of attorney at the time of a client’s death?
It becomes invalid
What type of mutual fund is often used as a safe harbor?
Money-market funds
If a client is unsure about a specific investment strategy, his funds should be parked in a _______________ fund.
If a client is unsure about a specific investment strategy, his funds should be parked in a money-market fund.
According to Reg T, what happens to a client’s account if she fails to pay in a timely manner?
Her account will be frozen for 90 days.
An investor’s strategy is __________ when effecting a short sale.
An investor’s strategy is bearish when effecting a short sale (If stock falls, investors may buy back at a lower price).
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.
Must the custodian in an UGMA account be a parent?
No. Any adult may be custodian.
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True or False: All corporate officers may effect transactions for the corporation.
False, only those named in the Corporate Resolution
Identify the acronym: SAR
Suspicious Activity Report
A margin account has Market Value of $20,000, Debit of $8,000, Equity of $12,000. What may the BD borrow from a bank?
$8,000, which is 100% of the debit balance.
How will the sale of securities from an account affect the account balances?
LMV and Debit decrease by the sales proceeds, Equity stays the same, and SMA increases by 50% of the sales proceeds.
True or False: ETFs are marginable and may be sold short.
True
The minimum equity requirement for the initial short sale in a margin account is $_______ .
The minimum equity requirement for the initial short sale in a margin account is $2,000.
Option positions due to expire in the next ______ business days will not be transferred with the rest of the account.
Option positions due to expire in the next seven business days will not be transferred with the rest of the account.
When buying securities in a restricted margin account, clients must deposit ___% of the trade within ____ business days.
When buying securities in a restricted margin account, clients must deposit 50% of the trade within four business days.
Who must review a change of address for a client of a producing branch manager?
An independent supervisor
An order to “buy 500 shares of Winchell Inc. at good price at some point today” is an example of a _________ order.
An order to “buy 500 shares of Winchell Inc. at good price at some point today” is an example of a not-held order.
What is a not held order?
An order giving agents discretion as to execution time/price. Clients must specify buy/sell, security, and quantity.
Not held orders may be placed by both ________ and _______________ customers.
Not held order may be placed by both retail and institutional customers.
At death, assets held in a minor’s account become a part of her _______.
At death, assets held in a minor’s account become a part of her estate.
Identify the acronym: SIPC
Securities Investor Protection Corporation
What is not pertinent when opening an account, a client’s educational or financial background?
Educational background
The current Reg T margin requirement is ____%.
The current Reg T margin requirement is 50%.
The _________ is responsible for taxes on income in a custodial account.
The minor is responsible for taxes on income in a custodial account.
What type of power of attorney is required for an individual to buy and sell securities in a client’s account?
Limited power of attorney
What will SIPC cover in a customer’s margin account?
Only the customer’s equity (securities clear of any outstanding loan)
Any amount of equity greater than 50% is called _______________.
Any amount of equity greater than 50% is called excess equity.
True or False: An individual who has been granted discretionary authorization is considered a co-owner of the account.
False. All account assets remain the sole property of the account owner.
True or False: Only BDs are required to provide privacy notices to their clients.
False. Investment companies, investment advisers, and banks also deliver privacy notices.
Under the Customer Protection Rule, which securities must be segregated from all other BD assets?
All fully-paid and excess margin securities belong to customers
If Mary has a cash account as well as an IRA account, what coverage will SIPC provide?
The cash account is one customer and the IRA (which is a trust) is a second customer. So, $500,000 for each customer.
How often must an updated copy of the privacy notice be provided to customers?
At least once during each 12-month cycle
What is the OFAC List?
The Office of Foreign Assets Control of the U.S. Treasury List; it identifies suspected terrorists and criminals
True or False: All discretionary orders must be pre-approved.
False. Discretionary orders are required to be reviewed and approved on the day the order is entered, not in advance.
Is SIPC part of the U.S. Government?
No. It is a non-profit entity funded by assessments on BD members.
For how long may a not held order be maintained?
A not held order is considered a day order.
