Chapter 2 - Customer Accounts Flashcards
CIP 4 critical pieces of info
Customer Name
Address
SSN or TIN
DOB
Arbitration Agreement, if signed, must be provided within ___ days of signing.
30 days
Provided at account opening
Firm’s privacy statement and business continuity plan
FINRA Rule 2090
KYC rule
SEC Rule 17a-3
Covers necessary client info. Client Name TIN Address DOB Telephone Occupation and employer Annual income Net worth Investment obj Signature of rep Signature of customer - with discretionary account
Client can refuse _______ and _________ information
Annual income and net worth. Firm can still open the account. All other info must be provided.
FINRA Rule 2111
Reasonable basis for suitability of recommendation based on investment profile.
3 components to suitability
Reasonable basis
Customer Specific
Quantitative
Reasonable basis suitability
Makes sense for the right investor - general rule for suitability
Customer Specific Suitability
After reasonable basis, does the recommendation match the investor profile
Quantitative suitability
Makes sense in terms of quantity of traded sec or frequency of trading
Reverse Convertible Note
Investor gets coupon yield before maturity. At maturity, if underlying is at knock-in price, investor gets par value. If not at knock-in, investor gets shares of stock.
PIPE
Private Investment in Public Equity
Reg D offering of restricted stock. Rule 415 shelf registration. Investor can sell shares in market within 3 years as registered shares.
Registered Rep signature on new account form if…
Suitability determination is completed; otherwise no longer required
Customer provided copy of account profile within:
30 days
Flat fee accounts - NMFBA - only offered by
Investment advisers - Series 65 or 66
Not Brokers
Senior citizen red flags; “No-no” recommendations:
Recommendation to:
- buy variable annuities, equity indexed annuity, and Real estate LPs
- variable life settlements
- structured products such as CDO
- mortgage residence to get money to invest
- using retirement funds for risky investments
“Free lunch” seminars
Highly discouraged
OATS
“Order Audit Trail System” Records: Name and any of security Terms of the order Time transmitted Time when execution report was received
FINRA Rule 4515
Permits Investment Advisers to allocate trades to clients accounts without the knowledge of BD executing.
*Trades must be allocated no later than 12:00pm on next business day.
Customer complaints retained for ___ years; FINRA rule
4 years - modified from 3 years to coincide with BD inspection cycle
Options positions exempt from freeze rule during transfer
Expiring in 7 days
ACATs remain active for residuals ____ months after initiation
6 months
Broker Protocol rules
Rep must:
- Give written notice of resignation to branch manager, detailing client information rep is taking
- information can be client name, address, telephone, email, account title
- Cannot contact clients until fully employed at new firm
- Cannot have anyone else contact clients from “old” firm
FINRA Rule 2273
Client must be provided educational brochure when solicited move by rep to new firm
Brochure under Rule 2273 must be provided within ___ business days
3 days
Retention of records in the event of client death
Account opening docs retained for 3 years, statements retained for 6
SDNs
“Specially Designated Nationals” - restricted states by US OFAC. Iran, N.Korea, terrorist orgs…
High Risk Customers under FINRA and PATRIOT Act rules
- Home country is not a member of FAFT
- Reside in country with bank secrecy laws
- Operate cash intensive business
SAR
“Suspicious Activity Report”
Filed with FinCEN within 30 days, event exceeding $5,000
FINRA Rule 3310
Governs AML policies
Regulation U
Prohibits brokerage from rehypothecating shares in excess of what was loaned to customer
Regulation T
Sets policies and practices around Margin accounts
Only applies to non-exempt securities
Customer Fails to deliver shares selling short in margin:
Must be purchased within 10 days after settlement
Minimum equity to open a long or short account
$2,000
“Cheap Stock Rule”
Shorting stocks under $10
- $10-5 minimum margin is $5/sh
- $5-0 minimum margin is $100% but never less than 2.50
Formula for SMA
SMA = 50% of Market value - Debit
Excess Equity SMA generated when…
Value of margined security exceeds initial margin of 50%.
MV increases SMA by
$1 MV increase = $0.50 SMA
50%
Maintenance call happens:
< 25% equity, 30% short
Value of security entering maintenance call
Debit / 0.75 = minimum LMV for call
