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Series 24 > Chapter 6 improvement Areas > Flashcards

Chapter 6 improvement Areas Flashcards

1
Q

Customer Acct info must be sent to the customer how long after opening the acct? (2)

A
  • within 30 days of opening of the acct and furnished at least once every 36 months to the customer.
  • has to be updated within 30 days after receiving notice of change in customers investment objectives
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2
Q

Margin accounts require which documents, and what are they? (3)

A
  • customers agreement (also called a hypothecation agreement or margin agreement, sets forth privileges’ and conditions under which the firm will finance customer credit (margin) transactions)
  • Loan consent agreement - not mandatory customer signs. securities can only be borrowed from margin accts, not cash accts
  • credit agreement: required BD to disclose to customer in writing: the manner in which interest is calculated, manner in which annual interest is computed, that the interest rate can be changed, nature of liens that BD has on securities and conditions which addtl collateral will be required
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3
Q

Limited Partnerships / DPPs

A
  • accounts that offer flow-through tax consequences to investors and require signature of general partners when establishing a new account, but do not require the signature of each limited partner.
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4
Q

Organizational and offering expenses for a limited partnership/ dpp are considered to be unfair and unreasonable if they:

A
  • exceed 15% of gross proceeds of the offering

- if total amount of comp payable to BDS, UWs, and affiliates exceed 10% of gross proceeds of the offering

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5
Q

RR solicitation of limited partnership rollups:

A
  • limited partnership rollup is combining or reorganizing one of more limited partnerships which some or all investors receive new securities
  • RRs may participate in solicitation of this rollup transaction if the general partner agrees to pay all solicitation expenses related to the rollup.
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6
Q

Day trading rules

A
  • minimum equity of 25k.
  • requirements are either 25% of the cost of all day trades in one day or are based on highest position held during the day and 100% of the current market value of non-marginable eligible equity securities
  • pattern day traders are 4 or more trades in 5 biz days
  • cross guarantees cannot be used to meet day trading margin requirements
  • day trading buying power is 4 times maintenance excess
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7
Q

A member firm would be deemed to be promoting day trading if it:

A
  • advertises to obtain above avg market returns using intra-day trading on margin
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8
Q

A member would NOT be deemed to be promoting day trading strategies if:

A
  • it provides general investment research
  • it advertises reduced trade execution costs for multiple trades
  • its website allows multiple entry, intra day trades on same security
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9
Q

When reviewing opening of an option acct for a new client, the branch manager must:

A
  • review and approve the new account report form
  • determine that the options disclosure doc was delivered to customer
  • determine that options trading is suitable for client and no more than 15-20% of assets are being used

option account agreement must be received by firm within 15 calendar days from the time the acct is approved for options trading

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10
Q

Rules for a donor of a UTMA/UGMA (4):

A
  • may give any kind of securities or cash, including mutual fund shares
  • any amount may be given (no limit on size)
  • must give fully paid securities
  • must be an adult
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11
Q

When a UTMA/UGMA donor is making a gift, they should consider the following (6):

A
  • completion occurs when securities are registered in name of custodian FBO the minor
  • exact age of person to whom gift is made
  • gift is completely irrevocable
  • certain states permit gifts of life insurance policies and annuity contracts
  • donor cannot make a gift through last will and testament
  • donor does not pay cap gains taxes on donated securities
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12
Q

A custodian retains control over minors account until either:

A
  • the minor attains majority which case the cash and securities remaining will be distributed to the individual
  • custodian is removed by court order
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13
Q

Approval and review of a discretionary account:

A
  • must be approved in writing by member or designated person such as officer, manager, or partner
  • principal approval is NOT required
  • must approve each discr. order entered promptly and must review all discr. accounts at frequent intervals in order to detect and prevent transactions that are excessive.
  • if BOM determines that it’s excessive, they should suspend further trades until they can discuss w RR
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14
Q

Order tickets must include (6):

A
  • terms and conditions or instructions, any modification or cancellation
  • identify account for which order is entered
  • identify each associated person responsible for the account
  • describe whether order was subject to discretionary auth
  • include time of execution or cancellation
  • identify time order was received, time of entry, price it was executed
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15
Q

BLSS Chart

A

Buy limits and sell stops are entered BELOW the market price of the stock.
Sell limits & Buy Stops are always entered ABOVE the market price of the stock.

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16
Q

Clearly erroneous trades

A
  • obvious error in any term, such as price, number of shares, unit of trading, or ID of a security.
  • must be reported to FINRA within 30 minutes
17
Q

Exchange traded securities erroneous transaction reporting thresholds:

A
  • report within 30 mins of becoming aware
  • appeals can be made
  • $0 to $25 = erroneous trade if difference is more than 10%
  • greater than $25 up to $50 = erroneous if difference is more than 5%
  • greater than $50, erroneous if difference is more than 3%
18
Q

OTC Equity securities erroneous transaction reporting thresholds:

A
  • report as soon as possible but no later than 3pm next trading day
  • appeals can be made
  • $0.9999 and under = erroneous trade if difference is 20%
    $5 to $74.99 = erroneous if difference is 10%
19
Q

What does the confirmation of a transaction have to show? And when does it have to be sent?

A
  • must disclose settlement date
  • disclose if security is callable.
  • must show capacity in which BD acted
  • must show commission paid to BD if acted in broker capacity
  • net price if acted in principal capacity
  • if BD makes a market in the security.
  • confirmation does NOT have to disclose the exchanges which the firm is a member
20
Q

REITs

A
  • companies that manage a portfolio of real estate to earn profits for shareholders
  • issue shares of common stock, publicly traded
  • managed by a board of trustees
  • not investment companies or Limited Partnerships (dpps)
  • do not provide writeoffs to investors
  • not classified as derivatives
21
Q

When a customer requests an account transfer and the ACATS system is being utilized, the transfer must be made in accordance with:

A
  • customer should submit a letter of auth. receiving firm obtains the letter, they must immediately submit request to carrying firm
  • when carrying firm receives request, carrying firm must validate the request within one business day, transfer must be completed within 3 business days
  • upon validation, carrying member must freeze acct, cancel all open orders, and accept no new orders
  • if after acct was transferred, carrying firm receives cash or securities in the acct within 6 months of transfer, assets must be transferred to receiving firm within 10 days.
22
Q

What does SIPC not cover?

A
  • claims relating to commodity accts
23
Q

Recommending speculative low-priced securities:

A
  • very volatile, very risky

- recommending these securities without knowledge of clients financial situation and other necessary data is a violation

24
Q

If a member believes financial exploitation of adults has occurred, is occurring, or will occur, the member firm can place temporary holds on disbursement of funds. Some specifics on the hold:

A
  • can be imposed up to 15 business days
  • member firm can extend it 10 addtl business days if it believes it has the grounds to do so.
  • must contact all authorized individuals in the acct within 2 business days of the hold.
25
Q

A member who recommends that a customer purchase or sell short any OTC equity security must first review current financial condition of the issuer (domestic, foreign, and delinquent filers):

A
  • for domestic issuers, financial statements include balance sheet no older than 15 months and a profit and loss statement no older than 12 months
  • for foreign issuers, 18 and 12 months
  • reviewer must inquire as to circumstances concerning failure to file, determination must be documented
26
Q

Penny stock suitability for new customers:

A
  • document the basis for determining suitability
  • deliver to the customer written suitability determination
  • receive from customer a written agreement for recommended transaction prior to executing
27
Q

Established customer can purchase a penny stock without suitability determination requirement if registered rep did NOT make the recommendation. Established customer is defined as:

A
  • customer that’s maintained acct at member firm for at least one year
  • has made 3 penny stock purchases effected on separate days and for different issuers
28
Q

Before any investor buys a penny stock, the registered rep must disclose:

A
  • bid and offer price and compensation to be paid to both registered rep and firm for the trade
29
Q

Promissory Notes:

A

form of debt that companies sometimes use to raise money. through the notes, company promises to return buys funds and make fixed interest payments to the buyer in exchange for borrowing the money.

  • promissory notes are sometimes present concerns like fraud and investor deception, unregistered securities, unregistered sellers, selling away, guaranteed returns or high returns, exorbitant commissions, and the financial stability of the issuing company.
30
Q

ASTROs (asset return obligation securities)

A
  • principal protected, index linked notes that pay no interest, not redeemable prior to maturity.
  • at maturity, holder is entitled to a payment based on percentage change in index less an adjustment factor plus principal amount invested
31
Q

Step-up notes

A
  • structured notes where coupon rate increases over time
32
Q

Single range notes

A
  • provide variable interest rate that’s measured to specific index, for example to CPI.
33
Q

Fixed rate knock out notes:

A
  • fixed interest if index stays above certain level. Interest payment not made when interest falls below that level.

Series 24 (13 decks)

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