Chapter 6: Customer Accounts Flashcards
______ is concerned with the relationship between the securities firm and its customers as well as the rules regulating that relationship.
FINRA
A customer can buy on ______ and sell ______ in a margin account. A margin account has much greater ______ than the cash account, where customers can only establish ______ positions and must pay in ______.
- Credit
- Short
- Risk
- Long
- Full
If the customer is a minor with a required custodian, the account must be opened as either ______ or ______. Only one custodian and one minor are permitted with either account.
- Uniform Gifts to Minors Act (UGMA)
2. Uniform Transfers to Minors Act (UTMA)
The ______ is called a(n) ______. Securities purchased must be paid for in full (no margin).
- Cash Account
2. Special Cash Account
Cash accounts are specifically required for ______, since all securities purchased must be registered in the name of the ______ for the benefit of the ______. Because of this, ______ is impossible. Securities purchased on ______ are held ______ (or in the name of the broker/dealer).
- Minors
- Custodian
- Minor
- Margin
- Margin
- Street Name
______ are specifically required in the case of guardianship, because all securities must be registered in the name of the ______.
- Cash Accounts
2. Guardian
In a(n) ______, the investor must maintain a cash balance sufficient to purchase securities, or the investor must pay for the securities within ______, which is the Reg T payment deadline.
- Cash Account
2. 4 Business Days
The following information is the minimum required on a new cash account:
- Customer’s ______.
- Customer’s ______.
- Customer’s ______.
- Customer’s ______.
- Signature of the ______ who approved the account.
- Customer investment ______ information, including:
a. Customer financial information
b. Investment objective
c. Risk tolerance
d. Time horizon
- Name
- Residential Address
- Date of Birth
- Social Security Number
- Principal
- Suitability
The ______ requires the broker/dealer to review the customer’s current, government-issued photo identification. This includes a driver’s license, a passport, or a military identification.
USA PATRIOT Act
The ______ does not require a customer signature on the new account form. However, the ______ may require it.
- Self-Regulatory Organization (SRO)
2. Broker/Dealer
Firms must have the customer verify new account information within ______ of the account opening.
30 Days
After the account is open, a change in the account registration, for example, as the result of marriage or divorce, must be updated within ______. The same is true for updating a change of address.
30 Days
On an ongoing basis, customer account information must be verified every ______.
3 Years (36 Months)
Firms must retain a record of the account’s last update for a period of ______ after the update to any customer account information. If there are no updates, the record must be retained for ______ after the account is closed.
6 Years
If there is a(n) ______, meaning that the account is transferred from one registered representative to another within the same firm, the new registered representative must verify all information.
Internal Account Transfer
A(n) ______ is the traditional brokerage account.
Cash Account
If the customer purchases securities in a cash account and does not pay for the securities within the ______ required by Reg T, the broker/dealer may either ask the ______ for additional time on behalf of the customer or ______ the securities out and ______ the account for ______.
- 4 Business Days
- Self-Regulatory Organization (SRO)
- Sell
- Freeze
- 90 Days
If a customer’s account is frozen, the customer must have ______ in the account before the broker/dealers enter any ______ on behalf of the customer.
- Money
2. Buy Orders
If a customer purchases a security and sells the same security without first paying for the original purchase, the broker/dealer will ______ (______) the customer’s account for ______, and will not release the sales proceeds to the customer until the customer pays for the original purchases. If the customer pays before the Reg T ______ requirement is up, the broker/dealer will then remove the ______ on the account.
- Restrict (Freeze)
- 90 Days
- 4-Day
- Restriction
When a customer transfers an account form one broker/dealer to another, the customer signs a(n) ______ form. The new broker/dealer sends this form to the old broker/dealer.
- Automated Customer Account Transfer Service (ACATS)
FINRA allows the old broker/dealer ______ to verify the account positions and another ______ to complete the transfer. Any option position within ______ of expiring remains at the old firm.
Under MSRB rules, a municipal securities broker/dealer has ______ to validate positions and ______ to complete the transfer.
- 1 Day
- 3 Days
- 7 Days
- 3 Days
- 4 Days
Once the ______ form is signed and sent, all new trades are executed through the ______ firm. The ______ firm freezes the old account and cancels any open orders.
- Automated Customer Account Transfer Service (ACATS)
- New
- Old
When a registered representative is recruited by a broker/dealer and the registered representative’s ______ are transferred to the new firm (also called the ______), the new firm is required to deliver a FINRA-created ______ to the registered representative’s former customers.
- Accounts
- Recruiting Firm
- Educational Communication
The FINRA-created ______ highlights key considerations when transferring their assets, including a summary of the direct and indirect impacts of the transfer. It also must include information about the new firm’s recruitment practices.
Educational Communication
The educational communication must be delivered for a period of ______ following the registered representative’s date of employment. Member firms may provide the educational communication in a(n) ______, either as a PDF or through a hyperlink.
- 3 Months
2. Email
The three main suitability obligations include:
- ______
- ______
- ______
- Reasonable Basis
- Customer Specific
- Quantitative Suitability
______ suitability requires a broker to have a reasonable basis to believe, based upon reasonable diligence, that the recommendation is suitable for at least some investors.
Reasonable-Basis
______ suitability requires that a broker have a reasonable basis to believe that the recommendation is suitable for a particular customer based on that customer’s investment profile.
Customer-Specific
______ suitability requires a broker to have a reasonable basis for believing that a series of recommended transactions, even if suitable when viewed in isolation, are not excessive and unsuitable for the customer when taken together in light of the customer’s investment profile.
Quantitative
The ______ requires that firms and associated persons of firms have ascertained a customer’s investment profile to determine the reasonable basis for a recommendation.
Suitability Obligation
The customer’s ______ includes, but is not limited to, a customer’s age, other investments, financial situation and needs, tax status, investment objective, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information that the customer may disclose to the member or associated person in connection with a recommendation.
Investment Profile
A registered representative may process ______ requests at any time. The Suitability Rule does not apply.
Unsolicited
Clearly stated recommendations to “______” a security are subject to the same suitability rules and requirements as recommendations to buy or sell.
Hold
Investment objectives can be broadly defined as follows:
- ______
- ______
- ______
- Preservation of Capital
- Income
- Growth
The investment objective ______ refers to the investor’s desire for liquidity and safety of principal, in other words, protection against the loss of invested principal.
Preservation of Capital
An investor who expects to use their funds within the next ______ or who simply has a very low tolerance for ______ will typically sacrifice growth of principal for this level of liquidity.
- 5 Years
2. Risk
A(n) ______ investment is one that can be sold quickly without losing significant principal.
Liquid
Investments with little or no price ______, such as capital preservation or money market funds, short-term treasuries, or Ginnie Maes, may be appropriate for an investor seeking ______.
- Volatility
2. Preservation of Capital
______ means income now as opposed to in the future, which translates into investments with a(n) ______.
- Current Income
2. Current Yield
With a(n) ______ investment objective, growth is generally sacrificed because distributions are taken in cash. Since ______ is the primary focus, moderate price ______ may be of less concern to such an investor.
- Current Income
- Yield
- Volatility
Depending on an investor’s ______ tolerance, ______ bracket, and income ______, a wide range of income-producing investments may be considered:
- Corporate bonds.
- Treasury securities.
- Agency securities.
- “______” stocks (well-established corporations with a history of strong dividends).
- Utility stocks.
- ______ stocks (for their regular stated dividend payments).
- Risk
- Tax
- Needs
- Blue Chip
- Preferred
For increased ______ under a current income investment objective, choices such as REITs (real estate investment trusts) and a wide range of income-oriented mutual funds are available. Municipal bonds and municipal bond funds may be advantageous for investors in the ______ tax brackets.
- Diversification
2. Higher
The federal marginal tax rate ______ in the U.S. as income rises, and is the tax rate paid on the next dollar of income. Also known as ______, the marginal tax rate helps ensure low-income earners are taxed at a(n) ______ rate than higher income earners.
- Increases
- Progressive Taxation
- Lower
Higher yields generally carry a(n) ______ degree of risk and/or price volatility.
Higher
Investors with a(n) ______ objective seek capital appreciation.
Growth
Growth investors typically have a longer ______ and no immediate ______ for the funds. Therefore, they have more time for their assets to ______. The longer time frame also means that they are able to weather the short-term ______ in the market. They avoid having to ______ on the funds when the market is down.
- Time Horizon
- Need
- Grow
- Ups and Downs
- Draw
______, also called ______, imposed an obligation on broker/dealers and registered representatives or associated persons to act in the best interest of individual retail customers at the time recommendations are made.
- Regulation Best Interest
2. Reg BI
______ requires that broker/dealers and associated persons must not put their financial or other interests ahead of those of the customer. This rule applies when recommending securities transactions (buy, sell, or hold), investment strategies, and types of accounts.
Regulation Best Interest (BI)
The best interest standard of conduct consists of 4 component obligations that broker/dealers must meet:
- ______: provide material terms of the relationship, fees, and conflicts of interest.
- ______: exercise reasonable diligence, care, and skill in making recommendations.
- ______: establish, maintain, and enforce policies and procedures reasonably designed to identify, disclose, and eliminate material conflicts of interest related to recommendations.
- ______: establish, maintain, and enforce policies and procedures to ensure compliance.
- Disclosure
- Care
- Conflicts of Interest
- Compliance
Broker/dealers and registered investment advisers (RIAs) are required to provide in writing a(n) ______ to each new or prospective retail investor.
Customer Relationship Summary (Form CRS)
The ______ includes required disclosures that provide retail customers with the following:
- Services offered by the firm.
- Fees and costs.
- Conflicts of interest.
- Required standards of conduct associated with the services offered.
- Legal or disciplinary history of the firm and its associated persons.
- Instructions on how to obtain additional information about the firm.
Customer Relationship Summary (Form CRS)
Form CRS must provide a link to the ______, which contains educational material for investors about investment professionals.
SEC’s Form CRS Webpage
Broker/dealers must provide Form CRS ______ or ______ (whichever is earlier):
- Recommending an account type, a security, or an investment strategy.
- Placing an order.
- Opening a brokerage account.
Before or When
RIA’s must provide the ______ document to new or prospective retail investors ______ or ______ entering into an advisory agreement.
- Customer Relationship Summary (Form CRS)
2. Before or When
Firms must deliver the ______ when recommending that assets be rolled over from a retirement account into a new or existing account or investment.
Customer Relationship Summary (Form CRS)
Form CRS must be updated within ______ of any material changes in customer information.
30 Days
Under certain circumstances a member firm might ______, ______, or ______ an account. In fact, it may do so at its own discretion, without disclosing the details of that decision. The firm may also require additional information or documentation in order to keep an account open.
- Refuse
- Restrict
- Close
If a member firm or associated person is unable to ______ and ______ required information, they could refuse to open an account.
Obtain and Verify
Before opening an account, member firms must adhere to the ______ rule. At a minimum, they must obtain the name, date of birth, address, and identification number (ex, social security number) of a customer.
Know Your Customer (KYC)
Firms are required to put procedures in place to verify the ______ of any person seeking to open an account.
Identity
The person opening the account must be at least ______ of age and of ______ in that state in which he or she resides in order to enter into a brokerage account agreement.
- 18 Years
2. Full Legal Age
When opening an account, the customer must provide ______, ______, ______, and ______ information and the member firm must be able to verify the ______ and ______ of a prospective customer.
- Current, Accurate, Truthful, and Complete
2. Identity and Creditworthiness
When opening an account, required customer ______ include information about domestic or foreign residency and/or citizenship, corporate insiders, employees of broker/dealers or self-regulatory organizations (SROs).
Disclosures
The ______ process also involves gathering information about customers by asking specific questions. Many of the questions are related to ______, including those focusing on investment objective, experience, and time horizon, as well as age, financial situation, other investments, tax status, liquidity needs, and risk tolerance.
- Know Your Customer (KYC)
2. Suitability
The ______ requires financial institutions to verify the identity of individuals wishing to conduct financial transactions with them. This is a provision of the ______ and is intended to help the government fight the funding of terrorism and money-laundering activities.
- Customer Identification Program (CIP)
2. USA PATRIOT Act
The discovery of ______, ______, or ______ would cause a member firm to refuse to open an account, and if uncovered after the account is open, would result in an account being closed.
- Fraud
- Money Laundering
- Tax Evasion
______, such as freeriding, liquidations from unsettled trades, late sales, and frequent trading or market timing limit a customer’s ability to make new purchases and may result in a restriction on the account.
Violations
______ is the prohibited practice of buying and selling a security and then paying for that purchase by using the proceeds from the sale of the same security. It is not permitted under the Federal Reserve Board’s ______ concerning broker/dealer credit to customers.
- Freeriding
2. Regulation T
In a(n) ______ account, a customer must pay for the purchase of a security before selling it.
Cash
Freeriding will cause the account to be restricted for ______. During this period, the customer may still purchase securities, but must fully pay for any purchase on the date ______.
- 90 Days
2. Of the Trade
The customer may avoid having a restriction placed on his cash account by paying for the securities by the ______ with funds that do not come from ______.
- Settlement Date
2. The Sale of the Securities
If the customer pays for the original purchase within ______ after the standard T+2 settlement date, the broker/dealer will then lift the restriction on the account. This is called ______. Reg T gives an investor a maximum of ______ to pay for securities purchased in a cash or margin account.
- 2 Business Days
- T+4
- 4 Business Days (T+4)
The customer has $2,000 in cash available to trade in his cash account. On Monday, he purchases ABC stock for $3,000; the trade will settle on Wednesday. On Tuesday, after an unexpectedly favorable earnings report that pushes the stock price higher; he sells ABC for $4,000 without paying in full for the initial purchase. He would have needed ______ in the account to cover the initial purchase; alternatively, he could have deposited an additional ______ prior to settlement. The purchase was paid for, in part, with proceeds from the sale of the same stock. This is a(n) ______ violation.
- $3,000
- $1,000
- Freeriding
The customer has no cash available to trade in his cash account. On Monday, he purchases ABC stock for $3,000. No payment is received from the customer by Wednesday’s settlement date. On Thursday, he sells the ABC stock for $4,000 to cover the cost of his purchase. This is a(n) ______ violation because he did not pay for the stock in full prior to selling it.
Freeriding
The customer owns $5,000 of ABC stock in a cash account. It is fully paid for and the trade has settled. On Monday, he sells ABC and, using the proceeds from the sale, buys XYZ for $5,000 on the same day. On Tuesday, he sells all of the XYZ stock, without adding additional cash to the account. The customer used the proceeds from the sale of ABC, which had not settled yet, in order to buy XYZ. He cannot sell XYZ prior to Wednesday without adding ______ to the account to cover the XYZ purchase. This is a(n) ______ violation.
- Additional Cash
2. Freeriding
______ or ______ violations are also called ______. In a cash account, the customer buys a security without enough funds to cover the purchase and sells another security, at a later date, to pay for it. The settlement of the purchase and subsequent sale do not match, which is a violation.
- Cash Liquidation
- Trade Liquidation
- Late Sales
Any ______ violations in a rolling ______ period trigger a(n) ______ funds-on-hand restriction. During this time, the customer must have ______ available in the account before he can buy anything.
- Three
- 52-Week
- 90-Day
- Settled Funds
The customer owns $7,000 of XYZ stock, but has no cash available to trade. On Monday, the customer buys $5,000 of ABC stock. In order to pay for the ABC purchase which will settle on Wednesday, he sells $7,000 of XYZ stock on Thursday. However, the sale of XYZ will not settle until Monday, which is after the funds are due based on ______ for the purchase of ABC. A(n) ______ violation will occur.
- Reg T+4
2. Cash Liquidation
______ or ______ involves excessive buying or selling of a fund. This activity can disrupt a fund manager’s ability to effectively manage the fund as the cash level in the fund is constantly changing. As a result, the broker/dealer may ______ the account.
- Frequent Trading
- Market Timing
- Restrict
A margin account is restricted or blocked when its ______ balance is greater than the ______ of the securities in the account. The customer is unable to purchase any additional stock on margin without putting up more ______.
- Debit
- Loan Value
- Equity
If an account is closed, the member firm or associated person must verify the ______ of the account. If the customer would like to transfer the account to another member firm, the transfer can be initiated by either firm using the ______, which enables eligible participants to efficiently and automatically enter, review, and settle the transfer of customer accounts between each other.
- Ownership
2. Automated Customer Account Transfer Service (ACATS)
Depending on the type of account being closed, the holdings could either be ______, in which case they would be sold and the cash proceeds would be transferred, or they could be ______, meaning that the securities would be transferred directly to another account.
- Liquidated
2. Transferred In-Kind
After an account is closed, the account information must be maintained for ______.
6 Years
A(n) ______ is any trade in which the registered representative chooses one or more of the following:
- The security
- The quantity
- The action (buy or sell)
Such activity can only be performed in a(n) ______.
- Discretionary Trade
2. Discretionary Account
A discretionary trade is any trade in which the registered representative chooses one or more of the following:
- The ______
- The ______
- The ______ (______ or ______)
- Security
- Quantity
- Action (Buy or Sell)
If the registered representative controls only execution time and price, the representative is NOT exercising ______.
Discretion
If the registered representative controls only ______ and ______, the representative is NOT exercising discretion.
- Execution Time
2. Price
There are two types of discretion: ______ and ______.
- Limited
2. Full
With ______ discretion, the representative may only authorize trades in the customer’s account.
Limited
With ______ discretion, the representative may withdraw cash and/or securities from the account.
Full
Possessing discretionary authority does not eliminate the representative’s responsibility to make ______ recommendations.
Suitable
In addition to the basic account information requirements, a customer must sign a(n) ______, which is a power of attorney providing trading authority, and this agreement must be approved by a(n) ______ prior to the first discretionary trade.
- Discretionary Account Agreement
2. Principal
A(n) ______ must regularly review activity in each discretionary account.
Principal
Fiduciaries are often limited to investing in securities that follow the “______”, which includes conservative, prudent investments; only investments that would be made by a prudent individual are allowed.
Prudent Investor Rule
The foundation of the investment advisor-to-client role is that of a(n) ______ who acts in the ______ of the client. An investment adviser must “______” in order to effectively perform this duty.
- Fiduciary
- Best Interests
- Know The Client
Investment advisers are ______ while broker/dealers are compensated based on ______.
- Fee-Based
2. Transactions
When looking at an investor’s situation, it is important to determine which would be better for the ______ with regard to a fee-based vs. a transaction-based account. For example, it would not be appropriate to put an investor who does not trade often in a(n) ______ account. This would be called ______.
- Customer
- Fee-Based
- Reverse Churning
Discretionary authority must be given ______ prior to the first transaction in the account. The account must be approved by a(n) ______ and it is subject to closer ______ than a nondiscretionary account.
- In Writing
- Principal
- Supervision
Trades in discretionary accounts require prompt approval from a(n) ______ and must be marked “______”.
- Principal
2. Discretionary
The registered representative must be qualified as a(n) ______ general securities representative in order to have discretionary authority.
Series 7
An individual account is one in which there is only ______. The broker/dealer may discuss the account with, and receive trade instructions from, the ______ only.
- One Owner
2. Owner
Without ______, not even the individual account owner’s spouse is authorized to discuss the account with anyone at the broker/dealer.
Prior Written Permission
A(n) ______ account bypasses probate and transfers directly to the deceased owner’s designated beneficiary.
Transfer on Death (TOD)
A TOD account is always a(n) ______ account.
Individual
______ accounts are accounts for wealthy individuals or portfolio managers who want simplified, reduced paperwork. The ______ holds the account and is responsible for all safekeeping and bookkeeping services, including customer statement delivery.
- Prime Brokerage
2. Primer Broker/Dealer
Because they are involved in safekeeping customer assets, ______ are subject to higher net capital requirements under SEC Rules of financial responsibility.
Prime Brokerage Firms
Under a prime brokerage account, the investor has one centralized ______ for all trading activity. However, account trades may be executed by several different ______.
- Statement
2. Broker/Dealers
When two or more adults own the assets in an account, the account is set up as a(n) ______, where each owner has an undivided interest in the entire account.
Joint Account
In a(n) ______, any owner may issue trade instructions. To withdraw cash, ______ owner’s name must be on the check.
- Joint Account
2. Every
There are two types of joint accounts:
- ______
- ______
- Joint Tenants With Rights of Survivorship (JTWROS)
2. Tenants In Common (TIC)
The ______ structure is commonly, but not exclusively, used by married couples and must have at least two owners with equal, undivided ownership.
Joint Tenants With Rights of Survivorship (JTWROS)
If one owner of a(n) ______ account dies, the survivor inherits the entire account and continues to authorize trades and withdraw funds. This account bypasses ______. However, it does not bypass ______.
- Joint Tenants With Rights of Survivorship (JTWROS)
- Probate
- Estate Taxes
In a(n) ______ account, unequal ownership is permitted. For example, one owner may own 50% while two additional adults each own 25% of the account.
Tenants In Common (TIC)
In a(n) ______, when one owner dies, the ownership interest passes to the owner’s estate, and ultimately the beneficiaries. Ownership is governed by the decedents’ will or state law.
Tenants In Common (TIC)
Whether the account is an individual or joint account, there are certain procedures that must be followed if an account owner dies:
- The account must be ______.
- All open orders are ______.
- The account must be marked “______”.
- Proper ______ must be gathered, including a certified death certificate, an affidavit of domicile (required in some states), an inheritance tax waiver form, and letters of testamentary (court-recognized will).
- Frozen
- Canceled
- Deceased
- Legal Paperwork
Upon the death of the owner of a tenants in common account, the distribution of the assets is governed by the ______ or ______.
- Decedent’s Will
2. State Law
______ allows individuals who are married to own property as a single legal entity. Each spouse owns an undivided interest in the property that also includes the ______. This means upon the death of either spouse the property would go the living spouse and avoid probate.
- Tenancy by the Entirety
2. Right of Survivorship
______ is property acquired by a husband and wife jointly, or separately, during the course of their marriage, which legally belongs equally to both spouses. This excludes separate property owned by either of them individually, for example, a git or an inheritance.
Community Property
A(n) ______ is a business owned by one person who is usually responsible for day-to-day business operations and owns all the assets of the business.
Sole Propreitorship
A(n) ______ benefits from the profits generated by the business, but also has unlimited liability.
Sole Proprietor
When a corporation opens an account, it must provide a copy of its ______ to the broker dealer. This document identifies the individual within the corporation who is authorized to trade on its behalf.
Corporate Resolution
If a corporation is opening a margin account, it must also provide a copy of its ______. This document must state that the firm may engage in margin activity.
Corporate Charter
Institutional investors often use a(n) ______ account, which is only allowed for institutional accounts. The investor has a(n) ______, which is usually a large commercial bank, and coordinates transactions and payments between the investor and the broker/dealer.
- Delivery vs. Payment (DVP)
2. Paying Agent
In a DVP account, delivery usually occurs within a short period of time. However, the parties have up to ______ to settle the transaction.
35 Calendar Days
______ is a type of settlement in which the delivery of the securities and the receipt of the payment must happen simultaneously.
Receipt vs. Payment (RVP)
When a partnership opens an account, the basic required new account information must be collected for ______ in the partnership. Also, the broker/dealer must obtain a copy of the ______, which names the individual who is authorized to trade on the partnership’s behalf.
- Each Individual
2. Partnership Agreement
In a(n) ______, the proceeds of the account would pass through the ______ upon the death of the owner.
- Trust Account
2. Trust
Typically, trust accounts are established with designated ______ on the account.
Trustees
Trust accounts require additional documentation, including a(n) ______, detailing all parties to the agreement and the scope of their authority.
Trust Document
______ are small enterprises formed by a group of people for a common lawful purpose, for example a parent-teacher association or a social club. They do not file any legal paperwork or establish a formal legal structure.
Unincorporated Associations
If the association is formed to benefit the public and does not include earning a profit, it is considered to be a(n) ______. Members of ______ may have personal liability for the obligations of the association if state laws do not provide for limited liability.
Unincorporated Nonprofit Associations
When securities are purchased for a(n) ______, the account must be opened in accordance with the ______ or the ______.
- Uniform Gifts to Minors Act (UGMA)
2. Uniform Transfers to Minors Act (UTMA)
Both UGMA and UTMA accounts are managed by a(n) ______ for the benefit of a(n) ______, but they differ in the types of assets they hold:
______: Gifts and transfers are limited to bank deposits, securities, and insurance policies.
______: Any kind of asset, including real estate, can be transferred into this account.
- Custodian
- Minor
- Uniform Gifts to Minors Act (UGMA)
- Uniform Transfers to Minors Act (UTMA)
Gifts made by the donor to the minor are ______, which means indefeasible or permanent. Gifts can be in any amount, except that the donor may be liable for ______ on any gift of more than a stated amount in 1 year to one individual (current annual exclusion is ______).
- Irrevocable
- Gift Tax
- $15,000
UGMA and UTMA accounts are opened under the Social Security number of the ______. They must include both the ______ name and the name of the ______.
- Minor
- Custodian’s
- Minor
In a UGMA/UTMA, all securities are registered in the name of the ______ for the benefit of the ______. As such, as the custodian has a(n) ______ to the minor and certain limitations are placed on the handling of the investments.
- Custodian
- Minor
- Fiduciary Responsibility
There can be only ______ custodian and ______ minor per UGMA/UTMA account.
One
The custodian may be reimbursed for any ______ incurred in managing the UGMA/UTMA account. However, if the custodian is also the ______, the custodian may not charge the minor for managing the account.
- Reasonable Expenses
2. Donor
UGMA/UTMA are ______ accounts and are opened under the tax ID of the ______.
- Custodial
2. Minor
The account must be re-registered in the child’s name upon attaining the age of majority under ______. Under ______, the custodian retains control up to the designated age (most states designate that the transfer must be done by age ______.
- Uniform Gifts to Minors Act (UGMA)
2. Uniform Transfers to Minors Act (UTMA)
_______ activity is not allowed in UGMA accounts, and stock in the account may not be registered in ______. Additionally, the custodian may not allow ______ to expire worthless or large amounts of excess ______ to build up in the account and must abide by the ______ established in the state where the child is located.
- Margin
- Street Name
- Rights
- Cash
- Prudent Investor Rule
Distributions of assets from a custodian account are to be utilized for the direct benefit of the ______ but not for the day-to-day support of the ______. Normal reimbursements of expenses to the custodian are ______.
- Child
- Minor
- Allowable
For UGMA/UTMA, tax liabilities from capital gains, dividends, and income distributions are the ______’s responsibility; therefore, the ______’s Social Security number is on the account.
Minor
______ on children were revised for 2018-2025 to disregard the income of parents and to apply ______ and ______ tax rates to the unearned income of children. Earned income will be taxed at the ______ rates of the child.
- Kiddie Tax Rates
- Trust
- Estate Income
- Regular
If the child is younger than ______ of age (or ______ if a full-time student) and the child’s interest, dividends, and other unearned income total more than ______, part of that income may be subject to tax at the rate of trusts instead of the child’s tax rate.
- 19 Years
- 24
- $2,200
If the child’s interest and dividend income (including capital gains distributions) total less than ______, the child’s parent may be able to elect to include that income on the parent’s return rather than file a return for the child.
This may result in paying ______ taxes than if the child filed a tax return, but given the high tax rates for ______, it might also result in paying ______ lower taxes.
- $11,000
- More
- Trusts
- Lower
All broker/dealer communications apply to only one owner.
Individual Account
Equal ownership; bypasses probate.
Joint Account with Right of Survivorship (JTWROS)
May have unequal ownership; ownership interest passes to owner’s estate upon death.
Tenants in Common (TIC)
Only available to married couples.
Tenants by the Entirety
Corporate resolution identifies who may trade in the account.
Corporate
Requires partnership agreement to open account.
Partnership
Grantor controls assets and can change trustees and beneficiaries.
Revocable Trust
Grantor no longer owns the assets.
Irrevocable Trust
Registered under a minor’s Social Security number.
Custodial
The ______ was granted authority to establish payment dates for customers. Customers purchasing securities on margin must pay for the securities within ______.
- Federal Reserve Board
2. 4 Business Days (T+4)
Except for ______, payment for all securities transactions must be received by the broker/dealer within ______, or no later than 2 business days beyond the ______ settlement date.
- Government Securities
- 4 Business Days
- Regular Way
The NYSE and FINRA both accept ______’ settlement for all securities transactions, EXCEPT governments and options (which are exempt from this rule) and ______ trades made before 2:30 PM of the same day.
Government securities are paid for and settle ______. Options contracts settle ______; the purchase and sale of the underlying securities are settled ______.
- 2 Business Days (T+2)
- Cash
- Next Day (T+1)
- Next Day (T+1)
- Regular Way (T+2)
______ occurs when a seller promptly delivers a properly endorsed certificate in good physical condition (not mutilated) with all of the legal items attached. It must be ______, or ______, and in proper ______.
- Good Delivery
- Negotiable or Legible
- Denominations
For good delivery of equities, it must be breakable into ______ in one one easy step. Thus, 5, 10, 20, 25, 50 are divisible into ______, but 15, 30, 40, or 80 are not.
- 100 Share Round Lots
2. 100
For good delivery of bonds, the ______ must accompany a municipal bond delivery unless marked ______. A(n) ______ from the transfer agent establishes good delivery.
- Legal Opinion
- Ex-Legal
- Letter of Attestation
Attest: be a witness to; certify formally.
In a(n) ______ order, payment is made upon delivery. The buyer and seller of the securities agree in advance upon the price with the proper documentation in place.
Collect on Delivery
In a(n) ______ order, if the funds are not available to pay for the securities at delivery, the receiving firm must promptly return the securities to the selling firm. No additional ______ to payment ______ are available.
- Collect on Delivery
- Terms
- Extensions
For ______-, ______-, and ______-issued (or distributed) securities, the transaction is conditional on a security that has been authorized, but not yet issued (or distributed).
- When
- As
- If
The ______ confirmation will not include the settlement date, the accrued interest, or the total amount paid for the bond. When the bonds are issued, the final confirmation will be sent.
When-Issued
On the day that a security is quoted ______, ______, ______, or ______, members are required to adjust the price and/or quantity of shares prior to executing an order from another broker/dealer customer.
- Ex-Dividend
- Ex-Rights
- Ex-Distribution
- Ex-Interest
A(n) ______ may be granted under certain circumstances. Broker/dealers are allowed to waive Reg T calls in the amount of ______ or less. Under exceptional circumstances, the member firm may apply and ______ may grant an extension to the payment date. If no extension is received, the member firm must ______ the securities and “______” the account.
- Extension of Time
- $1,000
- FINRA
- Liquidate (Sell)
- Freeze
If payment is not received on time, the customer’s account is ______ for ______. During this period, no ______ can be extended to the customer; however, the customer may continue to purchase securities on a(n) ______.
- Frozen
- 90 Days
- Credit
- Cash Basis
If the customer fails to deliver the security by settlement, the B/D could do a(n) ______ to close out the position. The B/D is required to give ______’ notice on the ______. In addition, the ______ must be completed within ______ from settlement.
- Buy-In
- 2 Business Days
- Buy-In
- Buy-In
- 10 Business Days
When a customer opens a margin account, the customer must sign a(n) ______, which must be completed prior to the first margin trade.
Margin Agreement
The margin agreement contains a(n) ______, in which the customer agrees to ______, or pledge, the account securities as collateral for margin, or the loan from the broker/dealer. The customer also agrees that the broker/dealer may ______ these securities as collateral to a bank.
- Hypothecation Agreement
- Hypothecate
- Re-Hypothecate
The broker/dealer ______ the securities when it borrows funds from a bank to use for the customer’s margin.
Re-Hypothecates
Margin accounts not only have to be approved and signed by the ______ of the firm, but also by the ______.
- Principal
2. Customer
Customers must receive a(n) ______ that describes the risks associated with trading securities in a margin account, including using leverage, which may subject them to a greater percentage of loss. The firm must provide the ______ document at the time of account opening and ______.
- Risk Disclosure
2. Annually
The broker’s ______ is a fluctuating interest rate and the broker/dealer will charge a percentage above this rate to their customers, which the broker/dealer must ______.
- Call Loan Rate
2. Disclose
Members must provide customers with a(n) ______ in paper or electronic form prior to or at the time of opening a margin account. This document provides basic facts about purchasing securities on margin and alerts customers to the risks involved with trading securities in a margin account.
Margin Disclosure Statement
The ______ enumerates the risks as follows:
- You can ______ more funds than you deposit in the margin account.
- The firm can ______ the sale of securities or other assets in your account.
- The firm can ______ your securities or other assets without contacting you.
- You are not entitled to choose which securities or other assets in your account are liquidated or sold to meet a(n) ______.
- You are not entitled to a(n) ______ on a margin call (although one may be available under certain conditions).
- Margin Disclosure Statement
- Lose
- Force
- Sell
- Margin Call
- Extension of Time
A margin account allows the investors to ______ against securities that they own. This means the brokerage house is essentially ______ to the investor; before getting a margin account, however, the investor must undergo a(n) ______.
- Take Out Loans
- Extending Credit
- Screening Procedure
If buying on margin is not in an investor’s plans, they should remember that all ______ must occur in a margin account.
Short Sales
Investors must sign separate ______ allowing the broker to use securities held in the margin account as collateral if there is a debit balance (i.e., the investor owes the broker money).
Margin Account Agreements
Margin interest is generally ______ to the investor. An except exists for municipal bonds. Because municipal bond interest is ______, margin interest on a municipal bond purchase is not ______. For this reason, municipal bonds are rarely bought on margin.
- Tax Deductible
- Tax-Free
- Tax Deductible
If an investor has a(n) ______ account, the investor will also have a(n) ______ account.
- Margin
2. Cash
The securities held in the ______ account (often non-marginable securities) do not count (nor can the broker sell them) if the margin account has a(n) ______.
- Cash
2. Debit Balance
The margin account is subject to daily ______ as established by the exchanges. Failure to maintain such ______ will result in forfeiture of trading rights and subsequent liquidation of the account.
- Margin Requirements
2. Margin
The ______ was granted authority, under Regulation T of the ______, to establish margin requirements for broker/dealers.
- Federal Reserve Board
2. Securities Exchange Act of 1934
The current Regulation T margin requirement is ______. This means that customers who purchase securities must deposit at least ______ of the values of the securities.
50%
Only ______ or ______ may be used as collateral in margin accounts. The practice of pledging securities as collateral for margin loans is known as ______. The broker/dealer can lend the customer the remaining ______.
- Cash
- Fully Paid Securities
- Hypothecation
- 50%
Regulation T requires a(n) ______ deposit when calls and puts are purchased, but requires ______ when calls and put are written
- 100%
2. No Deposit
New issues are ineligible for margin purchases within ______ of the distribution date. This ______ restriction also applies to mutual funds, since they are deemed to be continuous offerings of new issues. New issues and mutual funds must be held in a cash account for ______ before they can be used for collateral for a margin account.
- 30 Days
- SEC
- 30 Days
______ are exempt securities and not subject to Regulation T. However, the self-regulatory organization (SRO) does have deposit and maintenance requirements.
Treasury Securities
A(n) ______ occurs when the value of the investor’s margin account drops and does not meet the maintenance margin requirement.
Margin Call
An investor will need to deposit funds or securities to meet a(n) ______. If the investor does not meet the ______, the firm will liquidate securities.
Margin Call
The determination of which OTC, unlisted stocks are marginable is made by the ______ under ______. The ______ says NASDAQ National Major Market stocks are ______.
- Federal Reserve Board (FRB)
- Regulation T
- Federal Reserve Board (FRB)
- Marginable
Securities that can be purchased on margin are referred to as ______. This list includes any stock listed on a(n) ______ or on the ______ system, and certain ______ stocks approved for margin by the Federal Reserve Board.
- Marginable Securities
- National Exchange
- NASDAQ National Market
- OTC
______, ______ and ______, and certain ______ stocks cannot be purchased on margin. ______, including shares of ______, are ineligible for margin purchases within 30 days of the distribution date.
- Rights
- Puts and Calls
- OTC
- New Issues
- Open-End Mutual Funds
The ______ applies upon opening a margin account with a margin transaction, or upon the first margin transaction in the account. The exception occurs when the value of the securities is less than ______. In that case, the customer must deposit the ______ of the securities only.
- $2,000 Minimum Equity Rule
- $2,000
- Full Purchase Price
In a(n) ______ account, the deposit is never more than the full value of the securities. In a(n) ______ account, the minimum never falls below $2,000, even if the full value of the transaction is less.
- Long
2. Short
The main reason a customer opens a(n) ______ account is to utilize leverage in the purchase of securities. This borrowing enables the customer to purchase more of a security than would otherwise be possible.
Long Margin
A long margin investor must be ______ because if the market does not go up, a magnified loss will occur, due to using the leverage to buy more of a security.
Bullish
______ = Long Market Value (LMV) - Debit Balance (DB)
Long Equity (E)
Long Equity (E) = ______ - ______
Long Market Value (LMV) - Debit Balance (DB)
Long Market Value (LMV) ______ Debit Balance ______ Long Equity (E)
Long Market Value (LMV) - Debit Balance (DB) = Long Equity (E)
- If you buy 100 shares of Blue Wing at $40 and met Reg T at 50%, your starting point would be ______.
- If the market value dropped to $35, then you’d be ______.
- If the market value rose to $43, then you’d be ______.
- $2,000
LMV = 100 x $40 = $4,000
DB = 50% x $4,000 = $2,000
LMV - DB = $4,000 - $2,000 = $2,000 = Long Equity (E)
- Behind, $1,500
LMV = 100 x $35 = $3,500
$3,500 - $2,000 = $1,500 = Long Equity (E)
- Ahead, $2,300
LMV = 100 x $43 = $4,300
$4,300 - $2,000 = $2,300 = Long Equity (E)
______ = Shot Credit Balance (CB) - Short Market Value (SMV)
Short Equity (E)
Short Equity (E) = ______ - ______
Shot Credit Balance (CB) - Short Market Value (SMV)
Shot Credit Balance (CB) ______ Short Market Value (SMV) ______ Short Equity (E)
Shot Credit Balance (CB) - Short Market Value (SMV) = Short Equity (E)
Short sales occur when the customer is ______ and expects the market to go down.
Bearish
Stuart feels that the stock of Widget Company is overbought and will decline. He decides to sell short 100 shares at $60. Stuart borrows 100 shares of WC and immediately sells it at $60 (short sale proceeds) and meets Reg T by depositing $3,000 (50%).
- His starting point would be ______.
- If the market price declines to $50, the investor is ______.
- If the market price increases to $75, the customer is ______.
- $3,000
Short Credit Balance (CB) = $6,000 + $3,000 = $9,000
Short Market Value (SMV) = $60 x 100 = $6,000
CB - SMV = $9,000 - $6,000 = $3,000 = Short Equity (E)
- Ahead, $4,000
CB = $9,000 SMV = $50 x 100 = $5,000 E = $9,000 - $5,000 = $4,000
- Behind, $1,500
CB = $9,000 SMV = $75 x 100 = $7,500 E = $9,000 - $7,500 = $1,500
The risk of a short sale is ______; thus, the risk is ______ on the up side.
- Market Appreciation
2. Unlimited
The formula for the equity in a margin account with long and short positions is:
Long Market Value (LMV) ______ Debit Balance (DB) ______ Short Market Value (SMV) ______ Credit Balance (CB) ______ Account Equity (E)
Long Market Value (LMV) - Debit Balance (DB) - Short Market Value (SMV) + Credit Balance (CB) = Account Equity (E)
Only two things affect equity: ______ and ______.
- Cash
2. Market Value Changes
Occasionally, an investor is long a stock position with an unrealized capital gain, and the investor wishes to lock in that gain. However, the investor does not wish to close the position yet. In such cases, the investor might sell short this same stock. By doing so, the investor has locked in a sale price, but still owns the original position. This new short position is covered by the original long position. Therefore, no cash deposit is required. This practice is called “______”.
Going “Short Against The Box”
Brokerage firms keep a list of ______ securities, which are securities that it is unable to provide for short selling.
Hard to Borrow
The securities on the hard to borrow list cannot be ______ by investors.
Shorted
Cash comes into a margin account from ______, ______, and ______ received. Cash ______ equity and _____ debit (the amount owed). Cash goes out of the account as a(n) ______ or if ______ is charged to the account; this ______ balance and ______ cash.
- Deposits, Dividends, and Interest
- Increases
- Lowers
- Loan
- Interest
- Increases
- Lowers
Loan Value ______ Complement of Reg T% ______ Market Value
Loan Value = Complement of Reg T% x Market Value
A market value increase will ______ long equity and ______ short equity.
- Increase
2. Decrease
A market value decrease will ______ long equity and ______ short equity.
- Decrease
2. Increase
Maintenance rules were established by the ______, mainly the ______ and _____, and their rules are now uniform.
- SROs
- NYSE
- FINRA
Long maintenance is ______ of long market value. Thus, you buy 100 shares of BD at $40 and deposit ______ (Reg T). Maintenance is ______.
- 25%
- $2,000
- $1,000 (25% of $4,000)
In a short account, maintenance is ______; so if you sell short 1,000 shares at $60, you must deposit ______ (Reg T), and the maintenance is ______.
- 30%
- $30,000
- $18,000 (30% of $60,000)
If an account falls below minimum maintenance, there are three different ways to bring the account above maintenance:
- The investor can deposit ______ equal to the maintenance call.
- The investor can deposit ______ with a(n) ______ equal to the margin call.
- The investor can ______ out of their account.
- Cash
- Fully Paid For Marginable Securities
- Loan Value
- Sell Securities
If the customer doesn’t meet the maintenance call, the broker/dealer has the ability to ______ out of the customer’s account to meet the maintenance call.
Sell Securities
If the stock is purchased at $40, what’s the maintenance call?
$10/share
25% x $40/share = $10/share
If 1000 shares of the stock were purchased at $40, with a debit balance of $20,000, what’s equity at maintenance?
$26,667
If the account were at maintenance, market value would be 100%, debit balance would be 75%, and equity would be 25%.
In a long account, take the debit balance divided by 75% to get the market value at maintenance.
$20,000 / 0.75 = $26,667
What is the market value at maintenance when a debit balance is given?
Take the debit balance divided by the 75% to arrive at the market value at maintenance.
In a short account, take the credit balance divided by 130% to determine the level that the short market value can rise to before the account hits minimum maintenance. This is because of the 30% equity requirement for short accounts.
If a stock trades between $5 and $17.50 a share, the minimum maintenance rule is ______.
$5/share
If a stock trades between $2.50 and $5 a share, the minimum maintenance rule is ______.
100%
If a stock trades at $2.50/share or lower, the minimum maintenance rule is ______.
$2.50/share.
With an opening sale of 200 shares of XYZ at $12, what is the minimum maintenance?
$1,000
200 shares x $5/share = $1,000
An opening sale occurs of $1,000 shares of XYZ at $4. With Reg T at 50%, what is the minimum required deposit?
$4,000
$1,000 x 4 = $4,000
An opening sale occurs of 2,000 shares at $2. With Reg T at 50%, what is the minimum deposit required?
$5,000
2,000 shares x $2.50/share (minimum) = $5,000
A(n) ______ occurs when the equity falls below the initial Reg T, but remains above minimum maintenance.
Restricted Account
The customer doesn’t have to do anything if their account is restricted until the account falls below ______. However, if the customer were to purchase securities in a restricted account, they would be required to deposit ______ of the purchase price.
- Minimum Maintenance
2. Half (50%)
If the customer were to purchase $10,000 worth of securities in a restricted account, they would be required to deposit ______.
$5,000
If a customer were to sell securities out of a restricted account, they could only withdraw ______ of the sales proceeds.
Half
If in a restricted account a customer sells $10,000 worth of securities and on the same day purchases $12,000 worth of securities, the customer would be required to deposit ______.
$1,000 (half of the $2,000 difference)
______ is not an account, and it is not equity; it is a line of credit. There are three sources of ______, but there are only two uses.
Special Miscellaneous Memorandum Account (SMA)
Because ______ is a line of credit, it will increase the ______ for the customer and, therefore, may not be used to meet the minimum ______.
- Special Miscellaneous Memorandum Account (SMA)
- Debit Balance
- Maintenance Requirement
Dividends and interest received in the margin account must be withdrawn by the customer within ______. If the customer withdraws the money, the money will be applied to reduce the ______.
- 30 Days
2. Debit Balance
This is the only source of SMA related to equity. Assume that the original long market value (LMV) is $8,000, and the current LMV is $10,000:
LMV $10,000 - DB $4,000 = E $6,000
What is the SMA?
Special Miscellaneous Memorandum Account (SMA) = $1,000
First, determine one half of the current LMV: 50% of $10,000 = $5,000
SMA, or Excess Equity, is the amount of equity that exceeds the Reg T amount (half of current LMV).
Total E (Equity) exceeds the current Reg T by $1,000 ($6,000 - $5,000).
SMA is $1,000 or 50% of the market appreciation of the original LMV of $8,000 to the current LMV of $10,000.
On the short side, SMA increases by 150% of market depreciation. If our original position is:
CB $15,000 - SMV $10,000 = E $5,000
The market value declines to $8,000 or by $2,000. How much SMA is created?
Special Miscellaneous Memorandum Account (SMA) = $3,000
E (Equity) is $7,000 (CB $15,000 - SMV $8,000) minus 50% SMV ($4,000), which equals SMA of $3,000 or 150% of the market decline of $2,000.
On the long side, SMA increases ______ of the market appreciation. On the short side, SMA increases ______ of the market decline.
- 50%
2. 150%
On the long side, SMA increases 50% of the ______. On the short side, SMA increases 150% of the ______.
- Market Appreciation
2. Market Decline
You never lose ______ unless you use it. If market appreciation on the long side or market depreciation on the short side gives you ______, you don’t lose if the market goes the other way. You must use it to lose it.
Special Miscellaneous Memorandum Account (SMA)
______ is SMA x 2 for any marginable stocks. You can buy $2 of stock for every $1 of SMA.
Buying Power
If the SMA equals $5,000, the customer can purchase ______ worth of marginable securities without borrowing any money.
$10,000
______ is SMA x 1. If available, the amount of SMA can be borrowed to meet the Reg T requirement on a stock purchase. In this case, the SMA value falls (you’re using it), you buy stock equal to twice the value of the SMA that was used, and the debit balance goes up by the full value of the purchase.
Borrowing Power
A(n) ______ is an account for a professional money manager who qualifies for uncovered option writing and other high-risk investment activities. The minimum equity requirement is ______, but this account is allowed higher level of leverage than a normal margin account.
- Portfolio Margin Account
2. $100,000
A portfolio margin account must be approved for uncovered option writing by a designated ______. In addition, the ______ must sign and receive a copy of the risk disclosure statement.
- Registered Options Principal (ROP)
2. Customer
A(n) ______ is established for pattern day traders.
Day Trading Account
A(n) ______ is an investor who buys and sells securities on the same day, and has done so on 4 days in 4 different securities over the last 5 days.
Pattern Day Trader
A pattern day trader must have a minimum equity position in his margin account of ______. The day trader cannot use a(n) ______; the equity must be the day trader’s dollars.
- $25,000
2. Cross Lien
Because the pattern day trader does not hold positions overnight, a greater ______ is permitted. Account buying power equals ______ excess equity over the maintenance requirement (double the buying power in a standard margin account).
- Leverage
2. Four Times (4x)
A pattern day trader has account market value of $100,000 with a debit balance of $20,000, equity equals $80,000.
- What is the minimum maintenance on his long account?
- What is his excess over maintenance?
- How much may the day trader purchase due to his buying power?
- $25,000
25% x $100,000 (LMV) = $25,000
- $55,000
$80,000 (Equity) - $25,000 (Minimum Maintenance) = $55,000 (Excess Over Maintenance)
- $220,000
$55,000 (excess over maintenance) x 4 (buying power) = $220,000
The pattern day trader may purchase $220,000 worth of securities without depositing additional cash due to the buying power in the margin account.
The ______ established procedures for the protection of customer funds and securities in a brokerage account in the event of broker/dealer insolvency.
Securities Investor Protection Act of 1970
The Securities Investor Protection Act of 1970 created the ______, which collects assessments from broker/dealers in order to protect customers from loss due to a failed broker/dealer.
Securities Investor Protection Corporation (SIPC)
______ membership by most broker/dealers is mandated.
Securities Investor Protection Corporation (SIPC)
SIPC insures customers accounts for up to ______, including up to ______ in cash.
- $500,000
2. $250,000
______ covers customer losses due to broker/dealer bankruptcy only.
Securities Investor Protection Corporation (SIPC)
______ does NOT reimburse customers due to employee theft. Each member must purchase a separate ______ to protect against employee theft or loss of customer securities.
- Securities Investor Protection Corporation (SIPC)
2. Blanket Fidelity Bond
The amount of SIPC coverage is based on the firm’s scope of operations and the sufficiency of the coverage must be reviewed ______. The coverage is equal to ______ of the firm’s highest net capital requirement over the last ______. The minimum coverage is ______.
- Every Year
- 120%
- 12 Months
- $100,000
SIPC coverage is provided for ______ customer up to ______, with a maximum of ______ in cash.
- Each Separate
- $500,000
- $250,000
An individual owning a cash account and a margin account is considered ______. However, if the same individual also has a joint account with his or her spouse, or has an IRA rollover account, these are each treated as ______ with respect to SIPC coverage rules.
- One Customer
2. Separate Customers
Commodities are not covered by ______.
Securities Investor Protection Corporation (SIPC)
______ coverage applies only to customers. The coverage does not apply to broker/dealers or general partners, officers, and directors of the brokerage firm.
Securities Investor Protection Corporation (SIPC)
Broker/dealers typically hold customer securities in “______”, meaning the name of the broker/dealer. In other words, the securities are readily negotiable without the customer’s endorsement.
Street Name
Only securities held in ______ are covered by SIPC. The $500,000 limit does not necessarily mean that holdings in excess of $500,000 will be lost. Most brokers carry ______ in excess of SIPC limits.
- Street Name
2. Additional Insurance Coverage
If a customer’s securities were worth $1 million and the customer could recover only $300,000 in the brokerage firm’s normal liquidation process, then SIPC would take over and indemnify up to the $______ limit, leaving the balance of $______ to be addressed by the broker’s ______, if any. For any assets not recovered, a customer becomes a(n) ______ of the brokerage firm.
- $500,000
- $200,000
- Excess Insurance Coverage
- General Creditor
