Chapter 2 Flashcards
Who is responsible for supervising the securities related activities of their representatives?
Broker-dealers
Where must the firms supervisory system be documented?
Written supervisory procedures (WSP)
How often must the WSP be reviewed?
At least annually
What is the name of an office of a broker dealer where the following activities occur? order execution, approval of new accounts, approval of retail communications, review of customer orders.
Office of supervisory jurisdiction (OSJ)
How often must an OSJ be audited?
At least annually
How often must a branch office have an internal audit By FINRA?
At least once every three years
What is short swing trading?
Selling stock that was acquired within the previous six months at a profit or repurchasing stock at a lower price within six months of its sale.
What is a shorting against the box?
Executing a short sale on a stock that the investor owns.
What is it called when persons are legally forced to give up their profits?
Disgorgement
What is the purpose of CIP? (Customer identification program)
To enable the broker dealer to form reasonable belief that the individual is who they claim to be.
How long must the customers identification information be retained?
Five years after the record was made. Identifying information specifically must be retained for five years after the account closed.
What does regulation S-p Pertain to?
Requires financial regulators including the SEC to implement policies and procedures that restricted financial institutions ability to disclose non-public personal information about their customers and consumers.
How often must customers be provided with privacy policies?
At least annually and at the initial time the relationship is established.
True or false. A community property account is like a joint tenants with rights of survivorship account but can only be held by a married couple.
True.
What is a corporate charter?
the legal document stipulating that the corporation is a legal entity. The corporate charter will detail what types of securities transactions a corporation can participate in to finance growth
What is the corporate resolution?
A form that specifies which individuals are authorized by the Board of Directors to enter orders in the account an act on behalf of the company
When is a corporate charter required?
When a company wants to borrow money from their broker or engage in certain risky trading strategies
When is a corporate resolution required?
To open a corporate account.
Corporate account that is owned by one person.
Sole proprietorship
When a business is co-owned by more than one person with all partners sharing the workload and management of the company is known as:
General partnership
What type of partnership has general managers who manage the business used limited partners who simply make monetary investments in the business?
Limited partnership
Do you call groups of two or more people that join for a common purpose?
Unincorporated association
What is the purpose of a fiduciary account?
They are established to manage the assets for the benefit of a third-party, the beneficiary.
What are two types of fiduciary accounts?
Trust accounts and estate accounts
Form required to open the account and names both trustee and the beneficiary.
Trust agreement
What is it called when a person dies without a legal will?
Intestate
Documentation to open partnership account
Partnership agreement
Document to open corporate account
Corporate resolution
Document to open an unincorporated association
Articles of association
Document to open trust account
Trust agreement
Additional documentation for deceased account
Death certificate and letters of appointment
Dates established under regulation T
Declaration date, trade date, pay date
Who regulates margin accounts and the extension of credit from banks to broker dealers and their customers?
SEC empowers the federal reserve board
Documentation to open a margin account
Margin agreement
Documentation that authorizes the firm to lend the clients securities to others
Loan consent agreement
Document that must be given to customer explaining all the details on how the loans work and how interest is charged
Credit disclosure document
Document that permits the broker dealer to use some of the customer securities as collateral for a bank loan to finance the customers Margin account debt or to lend it to other customers
Hypothecation agreement
When must the hypothecation agreement be signed
Prior to opening a margin account
Document given to customer at or before the opening of a margin account
Margin risk disclosure document
Charge an annual fee based on a percentage of assets under management or an annual flat dollar amount for investment advice
Fee-based account
Charge a commission for each investment transaction
Commission based accounts
Account established by investment advisory firms not broker dealer. The client does not pay commissions or sales charges but is assessed a fee that covers all investment advisory fees administrative fees and trades processed through a broker dealer
Wrap account
Account that is usually established by institutions such as hedge funds or high net worth individuals
Prime brokerage account
Allows a third-party to place trades but not remove any assets from the account
Limited power of attorney
Allows third-party to place trades and remove assets
Full power of attorney
Power of attorney that remains legally enforceable if the client becomes mentally incompetent
Durable power of attorney
A power of attorney that Ceases if the client is declared mentally incompetent
Non-durable power of attorney
What type of account gets and RR or broker-dealer trading authority on an account
Discretionary account
Exception of a discretionary account
Price or time
In order to exercise discretionary account what is required
Prior written authorization
When was the trade and a discretionary account be approved by the broker dealer
Immediately after trade is done
The obligation that broker-dealer must make a reasonable effort to determine the best market and which to execute a customer order so the customer receives the best possible price
Best execution
Systems that automatically checked several markets simultaneously and deliver the best possible price available
Automated execution systems
What is required with a transaction of a penny stock
Disclosure in writing to the customer the amount of any compensation received in connection with the transaction
What is the written record of any changes to an executed order ticket called?
Cancel and re-bill
A trade that contains an obvious error and price size or security identification
Clearly Erroneous trade
What is the timeline to submit a written complaint of any transaction that is believed to be clearly erroneous to FINRA or NASDAQ
30 minutes of the trade execution time
Who can declare a transaction Noll and void
FINRA or NASDAQ
Records of erroneous trades must be kept on file for how long
Three years
How long will a customers account be frozen they do not pay by the deadline
90 days
Broker-dealers must send account statements to customers how often?
Add a minimum quarterly
In an account where there is activity how often should you send a statement?
At least monthly
The name of the system for transferring accounts between member broker-dealers
Automated customer account transfer service (ACATS)
Name of document submitted by customer to transfer account request
Transfer initiation form
Retention time of customer account records
Six years after the account is closed
