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Series 7 > Customer Account > Flashcards

Customer Account Flashcards

1
Q

Arbitration Agreement

A
  • not required

- if customer receives it, must be signed within 30 days

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2
Q

BCP Plan

A
  • must be provided at account opening, and provided on firm;s website
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3
Q

SIPC

A
  • must be provided at account opening, and annually thereafter
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4
Q

Regulation BI

A
  • ALWAYS PUT CUSTOMERS BEST INTEREST FIRST
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5
Q

BA Suitibility standard

A
  • broker-dealers held to a suitability standard
  • takes the opposite side of the transaction
  • can charge markups and commissions
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6
Q

IAs- Fiduciary standard

A
  • regulated by state
  • mus take the same side as inventory
  • can only charge fixed fees
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7
Q

FORM CRS

A
  • details if it is a BA transaction or IA transaction
  • the fees and costs customer will pay
  • whether firm has discplinary events
  • only required for retail clients
  • form must be on top and on website
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8
Q

Signatures required on a new form

A
  • registered represenative

- customer signature is not required

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9
Q

Customer must verify account within

A

30 days

- must be sent every 36 months after

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10
Q

Suitability rules do not apply to

A
  • institutional customers
  • unsolicited trades
  • investment analysis tools
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11
Q

Structured Products

A
  • derived from a basket of securities
  • bond portion ( s& p 500)
  • embedded option, sell at maturity
  • illiquid
  • credit risk
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12
Q

The risk associated with structured products

A
  • credit risk bc there is no underlying portfolio
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13
Q

Day Trading Account

A

FINRA requires much more detailed communication when opening an account

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14
Q

Pattern Day Trader

A
  • person who engages in 4 or more day trades in 5 days
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15
Q

Day Trader disclosure document

A
  • day trading can be risky
  • be wary of exaggerated claims of profits by day trading
  • knowledge of securities and operations
  • generate substantial commissions to the firm
  • losses greater than one’s investment
  • must be IA or BD
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16
Q

Approval of day trading account

A
  • no later than 10 days following the initial notice of the member day trading
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17
Q

Non managed fee-based accounts

A
  • flat annual fee for all trade executions
  • must be provided with a disclosure document, describing the types of programs available
  • obligated to determine if the customer is suitable
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18
Q

Annual account review

A
  • member firm monitor account activity every 12 months for customers not placed into an appropriate account
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19
Q

If the annual review determines that the NFBMA account is costly,

A
  • customer should be contaced and the situation discussed
  • ## if the customer wishes to keep the account, then follow the customer’s command
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20
Q

Senior citizen suitability

A
  • customer must fully understand the product

- firm does not have obligation to shield customer from risk if they want to take

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21
Q

Unsuitable recommendations/ red flags for senior citizens

A
  • purchase variable annuities, equity indexes, and RELPS
  • Purchase variable life settlements
  • purchase complex structured products, CDOs.
  • mortgage their residence to obtain fund for other investments
  • use retirement savings, early withdrawals
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22
Q

Bogus Certificates

A
  • certified senior advisor
  • certified financial gentrologist
  • senior specialist
  • retirement specialist
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23
Q

Senior citizen and diminished mental capacity

A
  • document the suspected diminished mental capacity, and escalate immeditely
  • firm should have a clearly designed member on who to contact in these situations
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24
Q

Steps to do after escalating a diminished mental capacity

A
  • stop trading in the account until the concern no longer exists
  • communicated with trusted contact or POA
  • Maintain frequent contact with the investor
  • consult appropriate state statutes to figure out the next step
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25
Q

Financial exploitation of senior citizens

A
  • allows member firms to place temporary holds on disbursements from client accounts when fraud is suspected
  • individuals 65 or older
  • individuals 18 or older with a diminished mental capacity
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26
Q

Examples of finacial exploitation

A
  • unauthorized or wrongful taking of funds
  • attempt to maintain control of the account by deception
  • attempt to convert/retitle the account owner’s funds, assets, or property
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27
Q

If a firm expects any of the financial exploitation acitivies they may

A

Place a 15 day hold on disbursements from the account that seem suscpicous
- if member review expects the disbursements are suspicious they can place another 10 day hold

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28
Q

Options disclosure document

A
  • must be received before account opening, date the form was sent must be on form
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29
Q

Options agreement

A

must be signed and returned no later than 15 days after account opening

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30
Q

Level 1

A

can only sell covered calls or buy puts only to hedge

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31
Q

level 2

A

can buy calls and puts to speculate

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32
Q

level 3

A

can take spread positions

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33
Q

level 4

A

can do anything, naked or covered

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34
Q

In order to move up in levels _____

A

suitability determination must be redone and options agreement must be resigned and dated within 15 days

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35
Q

Special statement for uncovered option writers

A

Discloses that

  1. naked call writers have unlimited risk and naked put writers have a substantial risk
  2. if broker demands additional margin due to adverse market movements, can liquidate customers positions without warning
  3. if the secondary market were to become unavailable, the writer would be subject to exercise at any time
  4. uncovered option writers are only suitable for the knowledgeable investors
  5. the writer of an American style option is subject to exercise at any time, European is subject during the exercise period
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36
Q

New account options form signature

A
  • the registered representative

- the manager of the branch office ROP

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37
Q

MSRB suitability rule

A

Must have knowledge about the customer’s financial background, tax status, investment objective

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38
Q

determing tax status

A
  • tax bracket and state of residence
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39
Q

under MSRB rules, if a customer refuses to disclose financial status

A

no recommendations are to be made

- unsolicited trade can still be accepted

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40
Q

If customer wants to place a trade that might not be suitable the RR should

A
  • still place trade if customer wants it

- mark it as unsolicited, and even sometimes phone tape the conversation

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41
Q

Series 9/10 can approve and sign

A
  • new account forms that trade stocks, options, and municipal bonds
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42
Q

General 24 Securities license responsibilities

A
  • can oversee all the firm’s supervisory activities

- approve accounts that trade stocks and municipal bonds NOT OPTIONS!

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43
Q

CBOE requires who to sign a new account form

A

ROP( series 4) or series 9/10

- no customer signature

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44
Q

MSRB requires who to sign a new account form

A
  • Series 53, se

- Series 9/10 or the series 24

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45
Q

Margin agreement

A
  • must be signed by customer at or prior to first trade settlement in the account
  • hypothecation agreement, customer agreement
  • pledges the customer securities in the account in return for the margin loan
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46
Q

Loan consent agreement

A
  • allows the firm to loan out customer’s securities for short sales
  • usually signed, not mandatory
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47
Q

Credit agreement

A
  • how the debit balance is computed and how interest will be charged on the loan
  • signed by customer
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48
Q

Risk Disclosure Document

A
  • explains how margin accounts used borrowed money to magnify returns in a rising market vice versa w a falling market
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49
Q

JWROS

A

-upon death, the surviving owner maintains full assets

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50
Q

JTIC

A

-upon the death of one of the owners it can be passed upon will to who they designate

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51
Q

Convenience account

A
  • an elderly parent who has many children, opens an account with one child, and the child can only draw checks for the parent. Upon death, the assets go into the estate
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52
Q

Prime brokerage account

A
  • typically used by hedge funds to consolidate all of their positions with one firm
  • can use different executing brokers for its trades, but all are settled by the prime broker
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53
Q

Fiduciary accounts are

A

CASH ACCOUNTS ONLY, NO MARGIN

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54
Q

discretionary account requires

A

Written POA before trading take places

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55
Q

Trade is considered to be discretionary if

A

size and security is chosen

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56
Q

market-not-held orders must be entered that day if given verbally or

A

written POA is required,

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57
Q

Every discretionary order ticket must be signed __

A

The appropriate principal promptly

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58
Q

When opening an account for an employee of another member firm under FINRA rules

A
  • written notice to executing member
  • written consent of employer member
  • dupe confirms and statement sent on request
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59
Q

When opening an account for an employee of another municipal firm

A
  • requires that dupe confirmations be sent, not on request
60
Q

When opening an account for employees of another CBOE member firm

A
  • prior consent of the member firm must be obtained and duplicate confirmations and statements must be sent
61
Q

Custodial accounts are____ accounts

A

CASH ACCOUNTS NOT MARGIN

-

62
Q

Custodial accounts are transferred to ____ at legal age

A

into the name of the new adult at legal age

63
Q

UTMA assets

A
  • allows any kind of asset, including real estate and fine art
64
Q

UGMA assets

A

-only allows financial instruments as assets

65
Q

Omnibus account

A
  • where all customer monies are pooled but the record of all customer’s positions in the account is maintained by the investment advisor
66
Q

Wrap accounts

A
  • all fees are tied into one

- considered an investment advisory product and individuals selling such accounts must pass the series 65 or 66

67
Q

Numbered account

A
  • to keep the identity of the customer a secret

- must have written request and approval attesting to the ownership of the account

68
Q

Customers must receive written confirmation of each transaction by

A
  • the day after the trade date for the regular way trade

- confirmation details the amount purchased or sold, execution price and amount of commission charged

69
Q

Statements must be sent

A

monthly if trading occurs, or quarterly if no trading occurs

70
Q

Customer records that should be kept on file by RR

A

Copy of New account information
chronological order of trades
the current account statement, showing positions

used to make suitable recommendations

71
Q

Error in Execution

A
  • if firm does not execute at the correct price, the firm is responsible to make good on the order
72
Q

Trasnferring account to a new firm

A
  • must be freezed
  • old firm must validate positions within 1 day, the transfer must be completed within 3 days to a new firm
  • any securities that have been borrowed for a short sale at the firm must be delivered within 10 business days of validation date
73
Q

Death of a customer

A
  • Cancel all open orders
  • freeze the account from the removal of assets
  • note customer is deceased with DOD
  • await further instructions from executor of estate
74
Q

Retention of records - closed account

A
  • new account forms must be retained for 3 years, and customer statements for 6 years
75
Q

Order Department

A

enters orders and transmits execution reports back to the person who entered the order

76
Q

Purchase and sales department

A
  • prepares trade confirmations to be sent to customer and records the trade
77
Q

FATF

A

Financial Action Task force

- 29 countries the combat anti-money laundering

78
Q

Verification of Name and Address

A
  • must independently verify the name and address
79
Q

SARs

A

must befiled with Fincen within 30 days

80
Q

Placement

A
  • making cash deposits below reporting thresholds
81
Q

layering

A
  • funds are often continuously wired from country to country making it hard to trace the source
82
Q

Integration

A
  • final stage where the funds are returned to the criminal
83
Q

Regulation SP

A
  • provide retail customers with the firm’s privacy policies and practicies at account opening and yearly there after
84
Q

The Federal Reserve sets margin on ______ securities

A

non exempt

85
Q

Regulation T applies to

A

non exempt securities

86
Q

The minimum Maintenance margin is set by

A

FINRA

87
Q

Hypothecation agreement

A
  • holds securities in customer’s accounts in “ street name”
  • repledges securities to a bank for broker loan
  • Commingle one customer’s securities with another customer’s securities
88
Q

Broker Loan

A
  • funds borrowed from the bank by the broker at a short term money market rate
    “ call loan rate”
  • larger the debit balance the less the interest spread taken by the brokerage firm
  • only margin securities in street name can be rehypothecated
89
Q

Regulation U

A
  • controls the extension of credit from the bank to the broker
  • so brokerage firms cannot borrow more money from banks using customer securities as collateral more than the actual loan
90
Q

The interest rate charged on banks to brokers

A

call loan rate/ broker loan rate

91
Q

The maximum amount of customer securities that may be rehypothecated to a bank by a broker is

A

140% of customer debit balances (the debit balance is the amount lent by the broker to the customer)

92
Q

Exempt Securities

A

U.S Government Issues
Agency Issues
Municipal Issues
Commercial Paper

93
Q

Marginable securities

A
  • Non- Exempt, actively traded

- securities listed on a stock exchange, specific OTC trading

94
Q

Non-marginable securities

A
  • Non-marketable securities
  • OTC issues not included in the OTC margin list
  • ## New issues for the first 30 days
95
Q

Cash account securites

A
  • any security can be purchased in full, promtly within 2 business day
96
Q

Regulation T Cash account payment frame

A
  • 4 days, S+2
97
Q

Reg T Extension

A
  • under exceptional circumstances, the firm may ask for a Reg T extension
  • granted by FINRA and gives the customer another 2 business days to be paid
  • if the customer does not pay, the firm is obligated to sell out that position and freeze the account for 90 days
98
Q

Margin account

A
  • where marginable securities can be bought on margin and where both long and short sales are permitted AS LONG AS REG T MARGIN IS MET
99
Q

Regulation T Margin account apyment frame

A
  • 4 days , S+2
100
Q

Arbitrage account

A
  • the simultaneously buying and selling short of the same security, short against the box
101
Q

When an account is “frozen”, what happens

A

payment in advance is required for purchases; and delivery of securities in advance is required for sales.

102
Q

Regulation T of the Federal Reserve Board sets the initial margin to buy stock at

A

50%

103
Q

Regulation T of the Federal Reserve Board sets the initial margin to short stock at

A

50%

104
Q

Regulation T states that if a customer purchases and sell securities on the same day, any deposits required by the purchase are______

A

offset by the sales proceeds generated from each sale

105
Q

If a customer sells a security, but does not deliver the shares

A

The position must be bought ten days after settlement

106
Q

In the unusual case that min margin is higher than Reg T, what must be paid

A
  • the higher amount
107
Q

FINRA sets the minimum maintenance margin for long stock positions at

A

25%

108
Q

Minimum Margin to open a long account

A

=$2,000

109
Q

Minimum Margin to open a short account

A

=$2,000

110
Q

FINRA sets the minimum maintenance margin for short stock positions at

A

30%

111
Q

Minimum margin for day trading accounts

A

$25,000

112
Q

Cheap Stock Minimum Margin under $5

A

-the greater of %100 of sale amount, or 2.50 a share

113
Q

Cheap Stock Minimum Margin valued at $5 or more

A

$5 or 30% of sale amount, whichever is greater

114
Q

FINRA minimum for arbitrage accounts

A

%5

115
Q

Long and short margin accounts must be marked to market

A

daily

116
Q

formula for long margin equity

A

long margin- debit = equity

equity/ long market value = margin percentage

117
Q

SMA

A

Special Memorandum Account

  • unused additional borrowing in an account
  • anything over the reg t requirement may be used
118
Q

Long Margin

For every _$ the long market value increases over margin,$.50 of SMA is created

A

$1, $.50

119
Q

SMA Formula

A

=50% of market value- debit

120
Q

Amount of SMA in an account that can be borrowed

A
  • borrowed in cash, or twice the amount can be borrowed in marginable securities
121
Q

Buying Power =

A

2 X SMA

122
Q

If an account loses value and drops below Reg T requirement ________

A

the account is restricted

- limit on withdrawal of funds from the account if securities are sold

123
Q

Restriction formula

A
  • 50% of long market value- equity
124
Q

To eliminate a restriction

A
  • cash must be deposited equal to the restriction amount
  • 2 times the restriction amount must be deposited in fully paid securities
  • 2 times the restriction amount must be sold in securities
125
Q

Minimum maintenance for long margin account

A
  • %25
126
Q

As long account decreases in value

A
  • market value decreases
  • debit remains unchanged
  • equity decreases
127
Q

Market Value at maintenance formula

A

debit balance/.75

128
Q

Maintenance call amount for an account below minimum

A

25% of LMV - Equity

129
Q

SMA and falling market

A
  • “locks”

- automatic stabilizer for declining markets

130
Q

cas dividends and SMA

A
  • reduces the debit, increases SMA
131
Q

SMA formula for short margin

A

equity- 50% market value

132
Q

For every $_ decline in MV, it produces $__ in SMA

A

$1, $1.50

133
Q

Selling Power

A

2X SMA

134
Q

As a short account rises in value,

A

Market value decreases;
Credit is unchanged;
Equity decreases.

135
Q

To find the market value to which a short account can rise and be at minimum maintenance, the formula is

A

credit balance/1.3

136
Q

Combined margin account formula

A

LMV- SMV +CREDIT - DEBIT

137
Q

When a short cover (purchase) is made

A

Credit balance declines;
Short market value declines;
Equity is unaffected;
SMA increases.

138
Q

Cash Dividends on Short Stock Position

A

must be paid from the short seller to the person from whom the stock was borrowed.
The dividend amount is offset against the credit in the short seller’s account - this reduces both the credit balance and the equity in the account.

139
Q

Inital margin to sell naked positions

A
  • 20% of underlying security and 10% minimum margin requirement
140
Q

To buy an option with a maturity of 9 months or less, Reg T requires

A

100% of the premium must be deposited, whether the option is bought in a cash or margin account.

141
Q

Regulation T sets the initial margin to buy LEAP options (long-term options) that have over 9 months to expiration at

A

75% of the purchase amount

142
Q

If a customer buys stock in a cash account,

A

100% of the purchase price of the stock must be deposited.

143
Q

f a customer buys stock in a margin account

A

50% of the purchase price of the stock must be deposited.

144
Q

If the customer sells a call against the stock position on the same day

A

no margin is required to sell the call because it is “covered” by the long stock position.

145
Q

If a customer has an existing long stock position in either a cash or margin account

A

it is assumed that the stock position is properly margined.

146
Q

portfolio margin

A
  • institutional and very wealthy investors, minimum $100,000
  • reduce the margin requirement for stock positions thats are hedge my option positions
    max is 15%

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