Chapter 1

Question 1

U4 update?

Answer 1

U4: update within 30 d or 10 biz days (latter if event that would cause statutory disqualification)

Question 2

Background checks going back how long?

Answer 2

5 y

Question 3

When should U5 be submitted?

Answer 3

< 30 days of termination

Question 4

How does new BD employer get U5? What deadline?

Answer 4

via employee or FINRA (< 60 d)

Question 5

At what $ thresholds should FINRA be notified of RR or BD becoming defendant or respondent?

Answer 5

RR: $15k ; BD: $25k

Question 6

Gift rule

Answer 6

If gift is given to RR of another BD: <$100 + approval of firm + given to firm

Question 7

RR sharing account with customer. Rules?

Answer 7

need firm approval, can’t share in P&L above amount invested

Question 8

Loans between Reps & customers. Rules?

Answer 8

firm approval + documentation maintained for 3 years

Question 9

What departments are involved in executing an order?

Answer 9

1/Wire/order room: route to market + send conf. to agent and Purchase & Sales dpt
2/Purchase & Sales: input to customer account + notify & bill customer
3/Margin dpt: checks amount owed by client
4/Cashiering dpt: distribution of cash & securities. Forwards certificates to TAs.

Question 10

Relevant dates in stock purchase process. What happens if a customer fails to pay?

Answer 10

1/Trade date: order executed
2/Settlement date: buyer becomes owner (T+2 normally or T+1 for Gov bonds or T+0 for cash basis trades)
3/Payment date: buyer needs to have money in BD. T+4. If violation of Reg T, BD freezes customer account (“sell out”) and customer has 90 days to pay. BD may ignore call for cash <$1000

Question 11

How many biz days after trade is settlement?

Answer 11

T+2 = 3rd business day

Question 12

Alternatives to “regular way” settlement?

Answer 12

Cash
Next Day
Buyer / Seller’s option: B (or S) wants to lock in price but doesn’t have the funds (or securities)

Question 13

What happens re: interest payments when bond is sold on secondary market? What is accrued interest formula?

Answer 13

Buyer receives full semi-annual payment
Buyer then owes accrued interest to Seller
formula : principal * interest rate * nbDays/360

Question 14

What is a Close Out ?

Answer 14

if selling BD fails to deliver securities, buying BD can “close out” the trade by purchasing said securities on open market and selling BD is responsible for loss (“buy in”)

Question 15

What are rules for Good delivery?

Answer 15

signature + attachments + uniform delivery ticket

Question 16

What is Medallion Signature Guarantee Program?

Answer 16

NYSE stamp instead of signature so that TA accepts more efficiently

Question 17

What is stock / bond power?

Answer 17

legal power of attorney form that transfers the ownership of certain shares of a stock to a new owner

signed attachment making certificate negotiable. Means owner endorses it.

Question 18

In what denomination should stock certificates be delivered?

Answer 18

Round lots

Question 19

How are bond certificates delivered? (denomination, form, attachments for Munis)

Answer 19

In par values of $1k or $5k
Bearer form (not registered in the issuing corporation’s books and is payable to the person possessing the certificate)
Muni bonds need legal opinion attached

Question 20

How often should customers receive statements? What do statements include?

Answer 20

Customer statement every month if activity in account (margin on books is considered activity)
Quarterly statements for all customers
Needs to include positions, activity & credit/debit balances

Question 21

What is “carrying firm” or “self-clearing member”?

Answer 21

BD that maintains possession of customer cash & securities

Question 22

What is an introducing BD and how do they clear trades?

Answer 22

Opposite of carrying firm is “introducing BD” or “correspondent”
Introducing BD can clear all trades through omnibus account at clearing firm (not for margin)

Question 23

Dividend distribution dates

Answer 23

Declaration date
Ex dividend date: first date when purchasers are no longer entitled to receive div.
Record date: date when investors need names recorded on stock certificate to be entitled to receive div
Payment date

Question 24

Stock price on ex date?

Answer 24

previous price - div

Question 25

What happens if proxy isn’t returned? (+ deadline)

Answer 25

If Proxy isn’t returned within 10 days of annual meeting, the member votes as sees fit (if matter not important) or may not cast vote (if important)