Chapter 4 - Documentation

Question 1

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

Answer 1

True, but signature would be required for an option or a margin account

Question 2

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

Answer 2

False.

Each owner must provide information to option a joint account.

Question 3

Who may enter orders in a joint account?

Answer 3

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True or False: Money may be withdrawn from a joint account in one owner’s name.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

Any checks should be in both parties’ names

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 join 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

Only one custodian is allowed per minor’s account.

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, securities must be fully paid.

Question 15

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

Answer 15

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

Question 16

May a custodian make speculative investements in a minor’s account.

Answer 16

Yes, provided they are suitable based on the 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

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

Question 21

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

Answer 21

Written Power of Attorney

Question 22

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

Answer 22

• Action (buy/sell)
• Amount (quantity)
• Asset (security)

Question 23

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

Answer 23

False.

The orders must be approved promptly afterward.

Question 24

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

Answer 24

Withdraw money from the account

Question 25

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

Answer 25

A **Partnership Agreement** is required to open an account for a partnership.

Question 26

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

Answer 26

Yes, with written third-party authorization.

Question 27

Name some of the different items found on a customer confirmation

Answer 27

* Description * Amount * Purchase/Sale * Execution Price * Trade/Settlement Date * BD capacity * Commission (on agency)

Question 28

\_\_\_\_\_\_\_\_\_\_ protects customers from BD bankruptcy.

Answer 28

**Securities Investor Protection Corporation (SIPC)** protects customers from BD bankruptcy.

Question 29

Does SIPC protect separate customers or separate accounts?

Answer 29

Separate customers. A customer with both a cash and margin account with a BD would be covered once.

Question 30

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

Answer 30

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

Question 31

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

Answer 31

Customers become **general creditors** if their cash or securities positions exceed SIPC coverage.

Question 32

If a broker-dealer goes bankrupt, what happens to securities registered in the customer's name?

Answer 32

They are returned to the customer without regard to SIPC limitations

Question 33

Who notifies customers of Broker-Dealer bankruptcy?

Answer 33

The trustee handling the liquidation

Question 34

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

Answer 34

False

Question 35

What steps are taken if a customer dies?

Answer 35

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

Question 36

Account statements must be sent to customers at least \_\_\_\_\_\_\_.

Answer 36

Account statements must be sent to customers at least **quarterly.**

Question 37

For active accounts, account statements must be sent \_\_\_\_\_\_\_\_.

Answer 37

For active accounts, account statements must be sent **monthly.**

Question 38

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

Answer 38

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

Question 39

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

Answer 39

Any suspicious transactions of $5,000 or more

Question 40

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

Answer 40

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

Question 41

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

Answer 41

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

Question 42

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

Answer 42

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

Question 43

Custodial accounts are opened under whose Social Security number?

Answer 43

The minor's

Question 44

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

Answer 44

False. Discretionary power of attorney is not required.

Question 45

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

Answer 45

Customer Identification Program (CIP)

Question 46

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

Answer 46

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

Question 47

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

Answer 47

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

Question 48

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

Answer 48

Regulation S-P

Question 49

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

Answer 49

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

Question 50

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

Answer 50

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

Question 51

Identify the acronym: CTR

Answer 51

Currency Transaction Report

Question 52

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

Answer 52

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

Question 53

The _______ must sign the account form

Answer 53

The **supervising principal** must sign the account form. (clients are not requried to sign)

Question 54

Based on written request, what is the maximum period that a BD may hold customer correspondence?

Answer 54

Three months. To exceed three months, the customer must provide the B/D with a valid reason for the request.

Question 55

Based on written instructions, a B/D may hold customer correspondence for __ months

Answer 55

Based on written instructions, a B/D may hold customer correspondence for **three** months

Question 56

Describe a wrap account.

Answer 56

An account that charges the client a single fee that covers transaction execution and account management.

Question 57

Is discretionary authorization required to enter a not held order?

Answer 57

No, since descrestion is limited to time and/or price for not held orders

Question 58

For how long may a not held order be maintained?

Answer 58

A not held order is considered a day order.