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SIE > Customer Accounts > Flashcards

Customer Accounts Flashcards

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1
Q

New Account Forms

A

which is an internal document used to compile basic information about customers for compliance purposes.

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2
Q

Patriot Act records

A

Keep records of the information used to identify the customer via customer identification programs (CIPs). Financial institutions use CIPs to verify the identity of customers who want to conduct financial transactions.

Verify that a customer doesn’t appear on any list of known terrorists or terrorist organizations. (The U.S. Treasury keeps this list.)

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3
Q

Street Name, or Numbered Account

A

A street name or numbered account is an account registered in the name of the broker–dealer with an ID number for the benefit of the custom

You need a written statement from the customer attesting to the ownership of the account. With the exception of margin accounts, a street name account may be changed by the customer to a regular account at any time. All margin accounts must be in street name.

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4
Q

Joint tenants with rights of survivorship (JTWROS)

A

With this type of joint account, when a joint tenant named on the account dies, his portion of the account passes on to the surviving joint tenant.

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5
Q

Joint with tenants in common (JTIC):

A

With this type of account, when one tenant of the account dies, his portion of the account becomes part of his estate. JTICs are usually set up for two or more unrelated investors.

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6
Q

Trust Accounts

A

Trust accounts are managed by one party (the trustee) for the benefit of another party.

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7
Q

Custodial Account

A

A custodial account is set up for a child who’s too young to have his or her own account. A custodian (adult) makes the investment decisions for the account.

There can only be one custodian and one minor per account. The minor is responsible for the taxes. (The minor’s Social Security number is registered for the account.) The account is registered in the name of the custodian for the benefit of the minor. (The custodian is responsible for endorsing all certificates.) The account can’t be held in street name (in the name of the broker–dealer with an ID number; see the earlier section

Because of the additional risk, securities can’t be traded on margin or sold short. Anyone may give a gift of cash or securities to the minor. The gift is irrevocable (can’t be refused by the custodian).

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8
Q

Discretionary Accounts

A

an investor can give you (the registered rep) the right to make trading decisions for the account. All discretionary accounts need a written power of attorney signed by the investor, which gives trading authorization to the registered rep.

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9
Q

Fiduciary

A

A fiduciary is anyone who can legally make decisions for another investor. Examples of fiduciaries are custodians (UGMA accounts), a registered rep having power of attorney, an executor of an estate, a trustee, and so on.

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10
Q

Corporate Accounts

A

Only incorporated businesses can open corporate accounts. If you’re opening a corporate account, you need to obtain the tax ID number of the corporation, which is similar to an individual’s Social Security number.

you also need a copy of the corporate charter (bylaws). The corporate charter has to state that the corporation is allowed to purchase securities on margin

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11
Q

Unincorporated Association

A

(sometimes called a voluntary organization) is a group of two or more individuals who form an organization for a specific purpose (in this case, investing).

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12
Q

Partnership Accounts

A

All partnerships must complete a partnership agreement, which the broker–dealer has to keep on file. The partnership agreement, like a corporate resolution, states who has trading authorization for the account so you know whom you’re supposed to be taking orders from.

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13
Q

Cash Account

A

When one of your clients is opening a cash account, it means that she must pay for each trade in full. It doesn’t mean that she has to drop off a suitcase full of cash; the trades are typically paid for via check or wire transfer. When a customer opens a cash account, she cannot purchase securities on margin.

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14
Q

Margin Accounts

A

you can borrow money from a broker–dealer to purchase securities or borrow the securities themselves. Margin accounts allow customers to buy more securities (or sell more securities short) from you (as a registered rep) than they otherwise would, thus leading to more money in your pocket (a greater commission).

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15
Q

Margin Agreement

A

The credit agreement discloses the terms for that borrowing, including the interest rate charged, the broker–dealer’s method of computation, and situations under which the interest rate may change.

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16
Q

Hypothecation Agreement

A

This agreement states that all the margined securities must be held in street name (in the name of the broker–dealer for the benefit of the customer). In addition, it allows the broker–dealer to use a portion of the customer’s margined securities as collateral for a bank loan (rehypothecation). The hypothecation agreement also allows the broker–dealer to sell securities from the account in the event that the customer’s equity falls below a certain level.

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17
Q

Loan Consent Form

A

The loan consent form gives permission to the broker–dealer to loan a customer’s margined securities to other investors or broker–dealers, typically for the short sale of securities.

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18
Q

Long Margin Account

A

the customer buys securities by coming up with a certain percentage of the purchase price of the securities (typically 50 percent) and borrowing the balance from the broker–dealer. These optimistic investors are hoping for a bull market, because they want to sell the securities sometime later for a profit.

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19
Q

Short Margin Account

A

an investor is borrowing securities to immediately sell in the market. The process sounds a bit backward, but the investor is selling things he doesn’t actually own yet. Ideally, for this bearish customer, the price of the security will decrease so the investor can purchase the shares in the market at a lower price and then return them to the lender.

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20
Q

Regulation T

A

The Securities Exchange Act of 1934 gives the Federal Reserve Board (FRB) the authority to regulate the extension of credit to customers in the securities

Regulation T (Reg T) requires customers to deposit at least 50 percent of the current market value of the securities purchased on margin, and the balance is borrowed from the broker–dealer.

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21
Q

Margin Call

A

(also known as a Fed call, federal call, or Reg T call) is the broker–dealer’s demand for a customer to deposit money in a margin account when purchasing or shorting (selling short) securities. If a customer is buying securities on margin, the customer may deposit fully paid securities in lieu of cash to meet the margin call.

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22
Q

Opening a Margin Account

A

Financial Industry Regulatory Authority (FINRA) and the New York Stock Exchange (NYSE) call for a minimum deposit of $2,000 or for the customers to pay for the securities in full.

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23
Q

Starting Long Margin Accounts

A

To open a long margin account, the customer is required to deposit Regulation T or $2,000, whichever is greater. The exception to this rule occurs when a customer is purchasing less than $2,000 worth of securities on margin.

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24
Q

Opening Short Margin Accounts

A

The minimum deposit for short accounts is fairly easy to remember. The $2,000 minimum required by the FINRA and NYSE applies to short margin accounts.

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25
Q

Telephone Act of 1991

A

The Telephone Act of 1991 does not apply to existing customers (customers who have executed a trade or had a security in the firm’s account in the previous 18 months) or calls from nonprofit organizations.

You can’t make calls before 8 a.m. or after 9 p.m. local time of the potential customer. You have to give your name, company name, company address, and phone number. If you get a potential customer who’s tired of being called, you should place that person on a do not call list. Each firm must maintain its own do not call list and have the U.S. government’s National Do Not Call List available. Although fax machines are becoming more obsolete, you may not send unsolicited ads by fax machine

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26
Q

Systematic Risk

A

Systematic (undiversifiable or market) risk is the risk that securities can decline due to political, social, or economic factors — changes in the economy, natural disasters, government policy, and so on.

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27
Q

Non-Systematic Risk

A

Nonsystematic (unsystematic, unique, or diversifiable) risk is more industry- or firm-specific.

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28
Q

Asset Allocation Funds

A

will rebalance the portfolio of securities held by the fund without needing to contact the shareholders.

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29
Q

Fundamental Analysts

A

Identify “What to Buy”

In depth company analysis.
In addition, fundamental analysts even look at the overall economy and industry conditions to determine whether an investment is good to buy.

30
Q

Balance Sheetsing

A

The balance sheet provides an image of a company’s financial position at a given point in time.

31
Q

Current Assets

A

Owned items that are easily converted into cash within the next 12 months; included in current assets are cash, marketable securities, accounts receivable, inventory, and any prepaid expenses (like rent or advertising.

32
Q

Fixed Assets

A

Owned items that aren’t easily converted into cash; included are property, plant(s), and equipment. Because fixed assets wear down over time, they can be depreciated.

33
Q

Current Liabilities

A

Debt obligations that are due to be paid within the next 12 months; included in current liabilities are accounts payable (what a company owes in bills), wages, debt securities due to mature, short-term notes payable (the balance due on money borrowed),

33
Q

Intangible Assets

A

included are items such as trademarks, patents, formulas, and goodwill.

34
Q

Long Term Liabilities

A

Debt obligation due to be paid after 12 months; included in long-term liabilities are mortgages, outstanding corporate bonds, and long-term notes.

35
Q

Stockholders Equity

A

(net worth) is the difference between the assets and the liabilities (basically, what the company is worth).

36
Q

Par Value of Common Stock

A

The arbitrary amount that the company uses for bookkeeping purposes

37
Q

Par value of the preferred stock:

A

The value that the company uses for bookkeeping purposes (usually $100 per share but could be $25, $50, or some other number). If the company issues 10,000 shares of preferred stock at $100 par,

38
Q

Additional paid-in capital:

A

The amount over par value that the company receives for issuing stock. If the par value of the common stock is $1 but the company receives $7 per share, the additional paid-in capital is $6 per share. The same theory holds true for the preferred stock.

39
Q

Treasury stock:

A

Stock that was outstanding in the market but was repurchased by the company.

40
Q

Retained earnings

A

The amount of net earnings the company holds after paying out dividends (if any) to its shareholders.

41
Q

Income Statement

A

An income statement tells you how profitable a company is currently. Income statements list a corporation’s expenses and revenue for a specific period of time (quarterly, year-to-date, or yearly).

42
Q

Technical Analysis

A

“When to Buy”

43
Q

Russell 2000 Index:

A

An index of 2,000 small-cap (smaller) companies.

44
Q

Lipper Indexes:

A

Track the financial performance of different mutual fund based on their investment strategy. Each Lipper Index tracks the performance of only the largest fund in each category (large-cap growth, mid-cap value, international fund, and so on).

45
Q

Dow Jones Composite Average

A

: An index that tracks 65 stocks from some of the most prominent companies. The Dow Jones Composite is broken into

Dow Jones Industrial Average (30)
Dow Jones Transportation Average (20)
Down Jones Utility Average (15)

46
Q

Dow Theory

A

believe that major market trends are confirmed if the DJIA and the Dow Jones Transportation Average are trending in the same direction (that is, both advancing or both declining). Logic dictates that if industrial companies are producing more goods, those same goods need to be transported.

47
Q

Contraction

A

Contraction is characterized by higher levels of consumer debt, a stock market that is generally decreasing (bearish), a decreasing demand for goods and services, and an increasing number of bond defaults and bankruptcies.

48
Q

Trough

A

Trough is the lowest part of the contraction phase and happens right before the economy starts to expand (recover) again.

49
Q

Fiscal Policy

A

Fiscal policy = borrowing, spending, taxes

The fiscal policy is typically included in budget decisions and includes how much the U.S. government will borrow (and how), how much it will spend (and on what), how much money will be raised through taxes, and so on.

50
Q

Monetary Policy

A

Monetary policy = money supply, interest rates

Controlled by the Federal Reserve.

51
Q

Easing Money Supply

A

Buying U.S. government securities in the open market Lowering the discount rate, reserve requirements, and/or Regulation T (although changing Reg T isn’t likely) Printing U.S. currency

52
Q

Tighten Money Supply

A

Selling U.S. government securities (pulling money out of the banking system) Increasing the discount rate, increasing reserve requirements, and/or raising Regulation T

53
Q

Open Market Operations

A

Open market operations are the buying or selling of U.S. government bonds or U.S. government agency securities to control the money supply.

54
Q

Discount Rate

A

This value is the rate that the 12 Federal Reserve Banks charge member banks for loans. If the discount rate increases, the money supply tightens; by contrast, if the discount rate decreases, the money supply eases.

55
Q

Reserve Requirement

A

The reserve requirement is the percentage of customers’ money that banks are required to keep on deposit in the form of cash.

56
Q

Regulation T

A

Reg T is the percentage that investors must pay when purchasing securities on margin

57
Q

U.S. Balance of Payments (BoP)

A

The U.S. balance of payments (BoP) is an accounting of the United States’ economic transactions with the world over a given period of time (typically quarterly or annually).

58
Q

Leading Economic Indicators

A

M2 money supply (cash, checking deposits, savings deposits, money market instruments, and so on) Stock prices Fed funds rate (rates that depository institutions [banks and credit unions] charge each other for overnight loans) Discount rate (the rate the Fed charges banks for loans) Reserve requirements (the percentage of customer deposits that the banks must hold) Housing; new construction (building permits) Unemployment claims Average hours per workweek Orders for durable goods (those not for immediate consumption) Consumer sentiment Yield curves (lines that plot interest rates for bonds of different maturities)

59
Q

Coincident Indicators

A

Coincident (coincidental) indicators are statistics that indicate how the economy is performing right now. Coincident indicators include Industrial production Personal income GDP Number of employees on nonagricultural payrolls and employment levels Retail sales

60
Q

Lagging Indicators

A

Lagging indicators are statistics that mirror leading indicators but reach their peaks and troughs somewhat later. Lagging indicators include The prime rate (the rate that banks charge their best customers for loans) Outstanding industrial and commercial loans Corporate profits Ratio of consumer credit to personal income Duration of employment Unemployment rate Ratio of inventories to sales

61
Q

Gross Domestic Product

A

think of the GDP as the total of all goods produced and all services provided by the United States in a one-year period.

62
Q

Gross National Product

A

GNP includes the GDP plus the investments made by U.S. businesses and residents inside and outside the United States.

63
Q

GDP and GNP are measured in constant dollars

A

Includes the cost of inflation This is necessary to help determine whether the economy is expanding or contracting from year to year.

64
Q

Cyclical Corporation

A

A cyclical corporation is one in which the performance depends on the economy.

Automobiles, appliances, construction, tourism

65
Q

Defensive Corporations

A

Defensive corporations are ones whose sales remain relatively stable no matter how the economy performs

Defense, utilities, food, clothing, alcohol

66
Q

Growth Companies

A

Growth companies, such as technology companies, are ones that are growing at a more rapid pace than comparable companies or the market as a whole.

67
Q

Keynesian (demand side)

A

The basis of the Keynesian theory is that government intervention through fiscal policy is good to help stimulate consumer demand for goods and services

68
Q

Supply Side (Reagonomics)

A

Supply-side economics is the theory that the government should remain relatively inactive and the economy will grow by itself.

69
Q

Monetarist

A

Monetarists believe that the economy’s performance is largely determined by the money supply (controlled by the Fed). The money supply can be used to fight inflation or to stimulate the economy.

SIE (9 decks)

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