Chapter 4

Question 1

True or False: Clients need not sign the account form for a cash account.

Answer 1

True; required for margin or option account

Question 2

True or False: Only one person must provide information to open a joint account.

Answer 2

False

Question 3

Who may enter orders in a joint account?

Answer 3

Any owner on the account

Question 4

For a joint account, how many account numbers and SSNs are used for tax reporting?

Answer 4

one

Question 5

What is a TOD account?

Answer 5

Transfer on Death; An account in one person’s name that allows a beneficiary to gain control upon the account holder’s death.

Question 6

True or False: Money may be withdrawn from a joint account in one owner’s name.

Answer 6

False; has to have both names on it

Question 7

What happens to the deceased’s portion in a joint account with tenants-in-common?

Answer 7

The deceased’s portion goes to his estate for tax purposes.

Question 8

What happens to the deceased’s portion in a joint account with right of survivorship?

Answer 8

Her portion passes to the survivor.

Question 9

Only ______ custodian is allowed per minor’s account.

Answer 9

one

Question 10

True or False: Custodial accounts are solely carried in the name of the minor.

Answer 10

False. The account is in the custodian’s name for the benefit of the minor.

Question 11

The _________ is responsible for taxes on income in a custodial account.

Answer 11

The minor is responsible for taxes on income in a custodial account.

Question 12

When do gifts become the property of the minor in a custodial account?

Answer 12

When gifted

Question 13

True or False: Gifts made to minors are irrevocable.

Answer 13

True

Question 14

Is margin permitted in a minor’s account?

Answer 14

No

Question 15

Custodians have a ____________ duty to do what is best for the minor.

Answer 15

fiduciary

Question 16

May a custodian make speculative investments in a minor’s account?

Answer 16

Yes, provided they are suitable based on objectives

Question 17

What age must be attained for the minor to gain control over his account?

Answer 17

Age of majority

Question 18

RRs must examine what document to open any corporate account?

Answer 18

Corporate Resolution

Question 19

True or False: All corporate officers may effect transactions for the corporation.

Answer 19

False, only those named in the Corporate Resolution

Question 20

Both the ____________ and the ____________ are required for a corporation to open an options or margin account.

Answer 20

Corporate Resolution AND Corporate Charter

Question 21

What is needed to exercise discretion over a client’s account?

Answer 21

Written Power of Attorney

Question 22

Is discretionary authorization required to enter a not held order?

Answer 22

No since note held orders only give RR discretion on to time and price.

Question 23

What three items must be specified on a not held order?

Answer 23

Action (buy/sell), Amount (quantity), and Asset (security)

Question 24

For how long may a not held order be maintained?

Answer 24

1 day

Question 25

True or False: Principals must approve discretionary orders prior to entry.

Answer 25

False. The orders must be approved promptly afterward.

Question 26

What may an RR do with full discretion, but not with limited discretion?

Answer 26

Withdraw money from the account

Question 27

A ___________________ is required to open an account for a partnership.

Answer 27

Partnership Agreement

Question 28

May a wife enter trades in a husband’s account?

Answer 28

Yes, with written third party authorization

Question 29

Describe a wrap account.

Answer 29

An account that charges the client a single fee that covers transactions and management

Question 30

Name some of the different items found on a customer confirmation.

Answer 30

Description, amount, purchase/sale, execution price, trade/settlement date, BD capacity, commission (on agency)

Question 31

_____________________________ protects customers from BD bankruptcy.

Answer 31

SIPC

Question 32

Does SIPC protect separate customers or separate accounts?

Answer 32

Customers

Question 33

True or False: Jim's joint account with his wife is considered a separate customer by SIPC.

Answer 33

True. E.g. Jim's cash and margin account are combined for coverage, but Jim's joint account with his spouse is separate.

Question 34

Customers become ___________________ if their cash or securities positions exceed SIPC coverage.

Answer 34

General Creditors

Question 35

If a BD goes bankrupt, what happens to securities registered in the customer’s name?

Answer 35

They are returned to the customer without regard to SIPC limitations.

Question 36

Who notifies customers of BD bankruptcy?

Answer 36

The trustee handling the liquidation

Question 37

True or False: SIPC provides coverage for both commodities and futures accounts.

Answer 37

False, Just futures

Question 38

What steps are taken if a customer dies?

Answer 38

Mark the account “deceased,” cancel open orders, and await instructions.

Question 39

Account statements must be sent to customers at least ____________.

Answer 39

quarterly

Question 40

For active accounts, account statements must be sent ____________.

Answer 40

monthly

Question 41

What triggers a BD’s filing of a Currency Transaction Report (CTR)?

Answer 41

Any cash transaction executed by a customer during one day that exceeds $10,000

Question 42

What triggers a BD’s filing of a Suspicious Activity Report (SAR)?

Answer 42

Any suspicious transactions of $5,000 or more

Question 43

What triggers a BD’s filing of a Currency and Monetary Instrument Report (CMIR)?

Answer 43

When anyone physically transports or receives cash (or equivalents) exceeding $10,000 into, or out of, the U.S.

Question 44

What items are acceptable as proof of identity under the Customer Identification Program (CIP)?

Answer 44

Passport or driver’s license (both have a picture)

Question 45

What steps should be taken when an RR executes a trade but uses the wrong account number?

Answer 45

Do a cancel and re-bill. Transfer the trade to the correct account number with permission of a supervising principal.

Question 46

Custodial accounts are opened under whose Social Security number?

Answer 46

The minor's

Question 47

True or False: Not held orders may only be executed in a discretionary account.

Answer 47

False

Question 48

What program must be established by BDs to verify the identity of each customer opening an account?

Answer 48

Customer Identification Program (CIP)

Question 49

What list must be checked to identify suspected terrorists and criminals?

Answer 49

OFAC List (Treasury Department's Office of Foreign Assets Control)

Question 50

True or False: Names appearing on the OFAC List are customers who had a previous business relationship with the firm.

Answer 50

False. The list shows the names of suspected terrorists and criminals.

Question 51

What regulation protects the non-public personal information of customers?

Answer 51

Regulation S-P

Question 52

Regulation S-P requires clients be provided with a ______________ detailing how BDs handle personal client information.

Answer 52

Privacy Notice

Question 53

For clients traveling within the U.S., how long may a firm hold their correspondence?

Answer 53

2 months

Question 54

For clients traveling overseas, how long may a firm hold their correspondence?

Answer 54

3 months

Question 55

What will SIPC cover in a customer's margin account?

Answer 55

Only the customer's equity (securities clear of any outstanding loan)

Question 56

Identify the acronym: CTR

Answer 56

Currency Transaction Report

Question 57

SIPC provides coverage of $_________ of which no more than $_________ can be cash.

Answer 57

SIPC provides coverage of $500,000 of which no more than $250,000 can be cash.

Question 58

The ___________________ must sign the account form.

Answer 58

Principal Supervisor