Chapter 9- Brokerage Support Services 15-20 questions

Question 1

Steps for processing a securities transaction

Answer 1

1. Order received by a registered representative and entered in the computer
2. The order department transmits orders to the proper markets for execution. Completed trade tickets are sent to registered rep and purchase and sales
3. Purchase and sales records all transactions in a clients account and handles all billing. Mails confirmation which specify commission and total cost
4. Margin/credit department computes dates when money must be deposited and the amount
5. The cashiering department- receiving/delivering securities and money. Send certificates to transfer agents who register in client name

National Securities Clearing Corp (NSCC) can simplify process by providing service

Question 2

Other departments involved in Trade

Answer 2

Reorganization department- Handles any transaction that involves change in securities outstanding

Dividend Department- Credits customer accounts with dividends and interest payments

Proxy Department- Send proxys to customers who leave security in company name. Also sends out other publications

Stock Record- maintains ledger of owners and certificate location

Question 3

Other People May Care

Sometimes WPMC

Answer 3

Order department
Purchases and sales
Margin Department
Cashiering department

Wire room is alternate

Question 4

What should a registered rep do before executing a trade?

Answer 4

Make sure that client has enough assets to pay for the security

Other securities being held in street name must be verified

Question 5

Order Memorandum or ticket

Answer 5

Most orders are online now but used to be ticket

Must enter an order ticket promptly or before the end of the trading day

Breakdowns in the order often occur between customer and broker… broker to wire operator

Info included on ticket:
Customer account number
Registered rep ID number
Order solicited or unsolicited
Subject to discretionary hearing
Symbol
Number of shares
Action
Options
Order restrictions
Type of account
Time the order was received, entry and price executed

No changes can be made until after the fact

Branch office manager or principal is to be immediately notified of errors

Changing an account number requires manager approval

Question 6

Report of Exectuion

Answer 6

Check the report to make sure it matches order ticket

Everything in order, reports to customer

If an error is found, report directly to Branch Office Manager or principal immediately

Changing account number requires manager approval

If details are mistakenly reported, still binding unless outside of customer instruction

Question 7

Reporting of an error

Answer 7

FINRA requires that a record or errors must be reported to whoever receives them

Would be a manager or someone with principals license

Made immediately in writing and retained for three years

Incorrect trades are not binding to a customer

Question 8

Aspects of a trade confirmation

Answer 8

Confirms trade, settlement date and amount due from or owed to customer

Must be sent or given a written confirmation of a trade at or before settlement date

Includes:
Trade date- date of execution, basis for when the settlement date will occur (third business day after)
Account number- branch office number followed by account number
Register rep Internal ID
Bot or SLD
Quantity (number)
Description
Yield
CUSIP
Price
AMOUNT received or paid BEFORE COMMISSIONS
Commission- will not appear if markup was charged
Net amount- after all expenses in trade

Also should show capacity and commissions if trades by agent

Markups are disclosed for Nasdaq securities

Question 9

Customer account statements

Answer 9

At least a quarterly report, most send monthly statements

Shows:
All activity
Security positions long or short
Account balance, debit or credit

Must advise client that funds are available if there is a cash balance

If there’s any activity or if there are penny stocks in the account, reports must be sent monthly

Question 10

Disclosure of financial condition

Answer 10

Must send a balance sheet of the company to a customer if asked

Any customer holding assets or transacting business allowed to request

Question 11

Charges for services/performed

Answer 11

A member broker/dealers fees and charges must:
Be reasonable
Relate to the work performed, transaction entered or advisory service given
Not unfairly discrimanatory

Question 12

Inactive account statements

Answer 12

Must be sent quarterly

Active accounts or accounts with penny stocks monthly

Question 13

Not held orders

Answer 13

Not held orders are directed to floor brokers

All others (limit, stops and Market) to order book

Question 14

Settlement date

Answer 14

Date ownership changes between buyer and seller

Date securities and funds involved are exchanged

Uniform practice code standardized the dates and times

Question 15

Regular Way Settlement

Answer 15

Third business day following the trade date, T+3

Corporate securities, Municipals and gov agency settle

US gov Tbills, notes and bonds, options settle next business day T+1

Money Market settle same day

Assets may be refused until settlement date

Question 16

Interdealler trades in gov securities settle in

All others settle in

Answer 16

1. Federal funds

2. Clearinghouse funds

Question 17

Cash Settlement

Answer 17

Delivery is same day

Settlement no later than 2:30 pm if executed by 2:00pm

Trades executed after 2:00, Settlement is due within 30 minutes

Question 18

Sellers option contracts

Answer 18

Available for customers who cannot deliver securities in time for regular way

Can settle on day specified in contract

Can settle any day between the fourth business day on, provided the buyer gives a one day notice

Buyer specified works same way

Question 19

When- contract

Answer 19

Municipal bonds are sold before issued

Original Confirmation- Does not include total dollar amount or settlement date or total accrued interest

A confirmation is sent out once the bonds are issued with security info, contract price and trade date

SAT is not included in original confirmation

Settlement date
Accrued interest
Total dollar amount

Question 20

Regulation T payment

Answer 20

Allowed to pay two days after settlement date

Can reach out to designated examining authority through broker/dealer to get an extension before the fifth day

Able to ignore under $1000

Generally prefer not to look for extension but will under extreme circumstance

If option cannot be cleared, it is sold and the account is frozen for 90 days

Customer is usually no longer extended credit

Can also get account frozen if you buy and sell before paying

Question 21

Broker to broker confirmations must be sent

Answer 21

No later than the business day following

Question 22

Municipal when-issued confirmations

Answer 22

SAT is not included

Settlement date
Accrued interest
Total dollar amount

Question 23

Proxy department

Answer 23

Department sends proxy along with other material such as financial statements

Proxy is like an absentee ballot

Material must be approved by SEC before it’s sent to shareholders

Proxy is a limited power of attorney that a stockholder gives to another person, transferring the right to vote on the stockholders behalf

Revoked if stockholder attends

If an issue is complex, there may be multiple solicitations.

SECs must review proxy before it is sent out by a company

Question 24

Proxy contest

Answer 24

Everyone who participates must register with SEC

Those who give unsolicited advice to stockholders must also register with SEC

If customer does not sign and return, member firm can only vote on minor issues

If signed but no decision, must follow management of issuers recomendation

Sent at issuing companies expense

Question 25

Proxy voting for street name shares

Answer 25

Must vote based on customer decision unless customer forgoes voting option

At that point management will vote if it’s a minor issue

Customers are to vote by the 10th day before the meeting

Major issues member firm never votes

Question 26

Don’t know or DK

Answer 26

Interdealer trade in which one firm does not recognize the trade or disagrees with facts

Question 27

Due Bill

Answer 27

If a customer buys before the ex date, it is entitled to the dividend

Due bill is sent to previous owner for remittance

Sent when wrong party receives dividend

Question 28

Good delivery requirements

Answer 28

Registered reps job to make sure it’s in good delivery

Usually a back office transaction piece, where they must check that all paperwork, signatures, attachments are present

Must be accompanied by delivery ticket to be good delivery

Odd lot Share certificates must be able to add to 100, 4 75 share certificates is not good delivery because you cannot make 100 share lots

Question 29

Partial delivery

Answer 29

Broker to broker must be accepted if remainder constitutes round lots

Question 30

Delivery of bonds good delivery

Answer 30

Coupon or Bearer bonds should be in 1000 or 5000 denominations

Fully registered Bonds in 1000 or multiples of 1000, not over 100k

Must have coupons if bearer bond

Question 31

Criteria of Certificate Negotiability

Answer 31

Stock and Bond Certificates must be endorsed by owner on back of security or on a separate stock or bond power of substitution

One per security

If an alteration to assignment is made, full explanation must be attached

Customer signatures must be guaranteed by acceptable party, and may not use abbreviations outside of Co. and &

Fiduciaries must supply a copy of court appointment to be able to sign for a client

If a security is damaged to point of doubt, it must be delivered with a surety bond

Business securities may require a corporate registration naming the person able to sign

Question 32

CUSIP numbers

Answer 32

Separate number is assigned to each issue of security

Question 33

Municipal securities with ex legal

Answer 33

Must be traded with legal opinion attached

Ex-legal- no legal opinion needed

Question 34

Failure to deliver

Answer 34

Payment is not made until delivery has been made

Buying broker may close contract by buying other securities and charge the selling firm for difference

Firm representing seller gives a customer 10 business days to deliver from settlement date

Question 35

Reclamation

Answer 35

If securities are not in good delivery and found out later, they may be delivered back to seller if:

1. There are minor irregularities. Return in 15 business days
2. Refused by transfer agent, certificates are stolen or counterfeit, 30 months to return
3. If bond is subject to partial Call, no limit on return time

Question 36

Timely mailing of confirmations

Answer 36

Must be sent no later that at or before completion of transaction

Question 37

Settlement dates and times are standardized by

Answer 37

The Uniform Practice Code

Question 38

Two types of bond deliveries that are never subject to reclamation

Answer 38

1. Bond certificates are subject to in whole call

2. Issuer goes into default after trade date

Question 39

If a security is sold by the estate of a deceased person, the signee should be

Answer 39

The executor of the estate

Question 40

A broker dealer may charge customers for

Answer 40

Safekeeping and maintaining custody of securities

Exchanging and transfering securities

Collecting dividends and interest

But may not charge for forwarding proxy material

Question 41

Unsigned securities

Answer 41

Not in good delivery

Should send the customer a stock power for the missing endorsement instead of the security