customer accounts Flashcards
To determine suitability for an account that wishes to engage in day trading, the member firm must make reasonable efforts to collect information about the customer’s:
To open a day trading account, the member firm must determine suitability, collecting information about the customer’s:
Investment objectives, investment and trading experience and knowledge;
Financial situation, estimated annual income, net worth and liquid net worth;
Tax status and employment status;
Age, marital status and number of dependents.
In addition, the customer must be provided with a day trading “risk disclosure document” prior to account opening.
The purpose of OFAC (Office of Foreign Assets Control) is to
impose economic sanctions against hostile foreign countries and groups
The Department of Treasury’s Office of Foreign Assets Control (OFAC) maintains a list of named countries, organizations, and individuals with whom anyone in the U.S. is prohibited from doing business. The “SDN” (Specially Designated Nationals) list includes such countries as Iran and North Korea and such organizations as the Al-Qaeda, as well as specified individuals associated with these countries and organizations. The intent is to place economic pressure on these groups by stopping U.S. investment in them. The SDN list must be checked before opening an account for a foreigner or foreign entity.
what needs to be done to open a new account
When opening an account for a customer, the customer’s name, address, date of birth and social security number must be independently verified by the member firm. If this is done by matching the information against a government issued ID such as a driver’s license or passport, there is no requirement for the member firm to prove the validity of those documents. At account opening, the PATRIOT Act requires that the customer name be matched against the federally maintained terrorist watch list; and the customer must be given notice that this will occur.
cheep stock rule
if a customer wishes to short a stock under $5 a share, he or she must put up the greater of 100% or $2.50 per share. 100% of $2 per share x 1,000 shares = $2,000. $2.50 x 1,000 shares = $2,500. The greater amount is $2,500.
if a customer wishes to short a stock under $10. To short a stock valued at $10 down to $5, the minimum is $5 per share. So, to short 1,000 shares of a $5 stock, $5 per share = $5,000 must be deposited
discretionary accounts rules
I Power of attorney must be obtained in writing from the customer before discretion can be exercised
II Each order ticket must be marked as discretionary
Generally, new issues cannot be margined for
30-day period following issuance
Under Regulation T, an extension for payment may be requested on the
settlement date + 2
Reg. T allows a customer to pay up to “Settlement date + 2,” which would be 4 business days after trade date. If the funds are not collected on “Settlement + 2,” either an extension must be requested from the exchange where the stock trades or the position will be sold out and the account frozen for 90 days.
Regulation T applies to
Common stocks traded on exchanges and Preferred stocks traded over- the-counter
Reg. T of the Federal Reserve Board only applies to non-exempt securities. Governments and municipals are exempt, so Reg. T does not apply. However, industry minimum margin rules still apply. Common stock and preferred stock is non-exempt. Therefore, Reg. T applies, as well as industry minimum margin rules.
Fix fee V. Wrap account
fixed fee accounts generally only cover transaction costs V. wrap accounts generally cover transaction costs, asset allocation and portfolio management
Fixed fee accounts (non-managed fee based accounts) only cover trading costs. They do not include charges for asset allocation and portfolio management. Wrap accounts include asset allocation and portfolio management, and thus are considered to be “investment adviser” products; whereas fixed fee accounts are brokerage products.
Discretion over trade
Discretion over price and time of execution can be given verbally. However, the order must be filled by the close of the market on that day or it is canceled. If price and time discretion are given for a time period that is longer than 1 day, then a written power of attorney from the customer is required to accept the order.
what can not be held in a portfolio margin account
listed bonds
What signatures appear on the New Account Form?
Registered Representative who performed the “Suitability Determination”
Manager or Principal
Lending from banks to customers, where securities are used as collateral, is controlled by the Federal Reserve under:
Regulation U
Under Rule 10b-16, customers must be notified about free credit balances in their accounts at least:
Rule 10b-16 requires that customers receive written notice of their free credit balances held in brokerage accounts at least quarterly.
what is the minim equity requirements for a portfolio margin account that you can day trade it and take unlisted derivative positions?
$5,000,000 account equity.
