Chapter 9- Brokerage Support Services 15-20 questions Flashcards
Steps for processing a securities transaction
- Order received by a registered representative and entered in the computer
- The order department transmits orders to the proper markets for execution. Completed trade tickets are sent to registered rep and purchase and sales
- Purchase and sales records all transactions in a clients account and handles all billing. Mails confirmation which specify commission and total cost
- Margin/credit department computes dates when money must be deposited and the amount
- 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
Other departments involved in Trade
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
Other People May Care
Sometimes WPMC
Order department
Purchases and sales
Margin Department
Cashiering department
Wire room is alternate
What should a registered rep do before executing a trade?
Make sure that client has enough assets to pay for the security
Other securities being held in street name must be verified
Order Memorandum or ticket
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
Report of Exectuion
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
Reporting of an error
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
Aspects of a trade confirmation
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
Customer account statements
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
Disclosure of financial condition
Must send a balance sheet of the company to a customer if asked
Any customer holding assets or transacting business allowed to request
Charges for services/performed
A member broker/dealers fees and charges must:
Be reasonable
Relate to the work performed, transaction entered or advisory service given
Not unfairly discrimanatory
Inactive account statements
Must be sent quarterly
Active accounts or accounts with penny stocks monthly
Not held orders
Not held orders are directed to floor brokers
All others (limit, stops and Market) to order book
Settlement date
Date ownership changes between buyer and seller
Date securities and funds involved are exchanged
Uniform practice code standardized the dates and times
Regular Way Settlement
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
Interdealler trades in gov securities settle in
All others settle in
- Federal funds
2. Clearinghouse funds
Cash Settlement
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
Sellers option contracts
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
When- contract
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
Regulation T payment
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
Broker to broker confirmations must be sent
No later than the business day following
Municipal when-issued confirmations
SAT is not included
Settlement date
Accrued interest
Total dollar amount
Proxy department
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
Proxy contest
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
Proxy voting for street name shares
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
Don’t know or DK
Interdealer trade in which one firm does not recognize the trade or disagrees with facts
Due Bill
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
Good delivery requirements
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
Partial delivery
Broker to broker must be accepted if remainder constitutes round lots
Delivery of bonds good delivery
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
Criteria of Certificate Negotiability
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
CUSIP numbers
Separate number is assigned to each issue of security
Municipal securities with ex legal
Must be traded with legal opinion attached
Ex-legal- no legal opinion needed
Failure to deliver
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
Reclamation
If securities are not in good delivery and found out later, they may be delivered back to seller if:
- There are minor irregularities. Return in 15 business days
- Refused by transfer agent, certificates are stolen or counterfeit, 30 months to return
- If bond is subject to partial Call, no limit on return time
Timely mailing of confirmations
Must be sent no later that at or before completion of transaction
Settlement dates and times are standardized by
The Uniform Practice Code
Two types of bond deliveries that are never subject to reclamation
- Bond certificates are subject to in whole call
2. Issuer goes into default after trade date
If a security is sold by the estate of a deceased person, the signee should be
The executor of the estate
A broker dealer may charge customers for
Safekeeping and maintaining custody of securities
Exchanging and transfering securities
Collecting dividends and interest
But may not charge for forwarding proxy material
Unsigned securities
Not in good delivery
Should send the customer a stock power for the missing endorsement instead of the security
