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Series 24 > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

What are blotters and by when should they be prepared?

A

Records of original entry. T+1

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2
Q

How often should the general ledger be prepared?

A

Monthly

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3
Q

What information do subsidiary records contain?

A

securities in transfer
securities/money borrowed/loaned
failed to r/d
dividends/interest received

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4
Q

What does securities position book / stock ledger contain?

A

long/short positions

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5
Q

Order tickets maintained if order not executed?

A

Yes

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6
Q

How do firms file Net capital computations ?

A

FOCUS form

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7
Q

Records preserved for 3y?

A

subsidiary, trial balance, employment app, order tickets, checkbooks/bank statements, FOCUS, U4 U5, manuals

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8
Q

Records preserved for 6y?

A

blotters, gen ledger, sec pos, customer ledger

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9
Q

Records preserved for life?

A

minutes, stock certif books, articles

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10
Q

How long records kept in readily accessible place?

A

2 years

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11
Q

Introducing BD record requirements?

A

None, unless clearing is done on omnibus basis

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12
Q

What are requirements if Introducing BD clears trades via bank?

A

If transactions are cleared through bank: bank statement that account is BD’s + bank provides notice to SEC that records available

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13
Q

Net capital formula

A

liquid assets - total liabilities

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14
Q

Clearing BD need to be member of?

A

DTCC & NSCC

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15
Q

NC for M&A, Inv co. subscription basis, no customer funds & securities

A

$5k

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16
Q

NC for Purchases inv co. shares on wire basis or sells stock for customers whose proceeds are immediately invested in open end inv co.

A

$25k

17
Q

NC for Intro BD immediate delivery to clearing firm, best effort & all-or-none underwritings

A

$50k

18
Q

NC for Market Makers, more than 10 prop trades / y, firm commitment underwriting

A

$100k

19
Q

NC for General securities BD

A

$250k

20
Q

NC for Prime broker

A

$1.5M

21
Q

What kind of debt does Aggregate indebtedness include? What are AI/NC max ratios to be respected?

A

Aggregate indebtedness only includes debt related to customers & tax payable.
AI needs to be: 8:1 in Y1, 15:1 thereafter

22
Q

What is a haircut and what are the levels?

A

Haircut: deduction from MV of securities for purpose of calculating NC requirements
Haircut = MV minus:
15% if 3 or more independant market makers
40% if 1 or 2
100% if unregistered or no market
Undue concentration haircut: additional 15% if prop position >10% of tentative net capital
30% for open contractual commitment (underwriting, delayed delivery)

23
Q

What is a box count? How often? What impact can count differences have?

A

security counts to be made by certain exchange members, brokers, and dealers

if BD has custody => quarterly count
If count of certificates is below records => “short securities difference” situation => deduction of net capital of 25, 50, 75 or 100% after 1, 2, 3 or 4 weeks respectively
Long securities difference has not effect on NC.

24
Q

Reporting of Missing & lost securities

A

Reporting with 1 biz day to SIC, TA and FBI if criminal activity
Otherwise: SIC & TA on 3rd biz day

25
Q

What is the Customer protection rule?

A

Customer funds maintained in safe / seggregated area or special reserve bank account

26
Q

How much should be deposited in the special reserve account if monthly computation?

A

(credit - debit) * 105%

27
Q

How much should be deposited in the special reserve account if weekly computation? When do broker dealers need to compute weekly?

A

(credit - debit) * 100%
If: Aggregate Indebtedness > 800% of NC or if Agg Funds > $1M

28
Q

What are the exemptions to the customer protection rule?

A

1/no margin accounts + promptly transmits all funds & securities + no customer funds & securities held
2/uses a clearing BD + promptly transmits everything to clearing BD

29
Q

When are FOCUS reports files? What do they contain? How often are they filed?

A

FOCUS Part 1 report filed monthly: financial ratios & numbers
FOCUS Part 2 report filed quarterly: BS, IS, NC
Part 2A filed if BD doesn’t carry customer accounts

30
Q

What is the Early warning rule?

A

FINRA & SEC need to be notified within 24h if:
AI:NC > 12:1
NC <120% of requirement

31
Q

What forms need to be filed when Early warning rule is breached? And for how long?

A

FOCUS Part 2 or 2A need to be filed within 15 days of month end and filing must continue until 3 consecutive months where Early Warning conditions have not been met

32
Q

What happens if NC < requirement

A

BD must immediately cease business with public, notify SEC & DEA, file FOCUS Part 2 within 24h

33
Q

What happens if BD fails to make and keep current books & records or discovers there is a material inadequacy in books?

A

immediate notice of SEC and it’s DEA + corrective measure report within 48h

34
Q

FINRA Financial requirements (expansion, reduction)

A

FINRA can require the firm to:
stop expanding if:
NC < 150% of requirement
AI:NC > 10:1
reduce business if:
125%
12:1

35
Q

BD subordinated loan restrictions? What is excluded from violation calculation? Filing requirement?

A

-capital violation if subordination agreement > 70% of BD’s debt + equity for 90 days
-excluded from calculation: stockholder or partner loans and > 1y remaining to maturity on loan with term > 3y
-if there is a satisfactory subordination agreement, subordinated debt may be considered part of BD’s NC
-filed with SEC and DEA 30 days prior to becoming effective

36
Q

NC formula

A

(net worth + subordinated loans) - non allowable assets - haircuts

37
Q

What are non allowable assets in the context of NC calculation?

A

buildings, exchange membership, equipment, prepaid expenses, intangibles…

38
Q

What is a fidelity bond? What are the levels required?

A

covers customers against fraud, forgery, loss of securities. Not bankruptcy or $ losses.
120% of NC if NC <$600k
$750k to $5M if above

Series 24 (11 decks)

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