Customer Accounts Flashcards by Liz DeWan

As part of its customer identification program, a broker-dealer must obtain the following information before opening an account… (4)

Name
DOB
Address
SSN

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Under the US Patriot Act records relating to the verification of a customer’s identity must be retained for…

Five years

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Before opening an account a firm must verify the identity of each new customer by obtaining ___________, _____________, or ____________. They must also check to see if the customers name appears on…

DL, PP, Military ID

List of known terrorists by contacting the office of foreign assets control (OFAC)

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When a firm opens a new account it must verify the customers identity within a reasonable amount of time. There are no specific SEC rules regarding this guideline but…

The firm must have written supervisory procedures regarding the situation.

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New clients must receive a copy of their account record within _________ days of opening their account, and the firm must send a copy of the account record to the customer at least ____________.

30 days of opening

Every 36 months

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With regards to privacy notices what must a customer receive versus a consumer?

Customer (ongoing relationship) = privacy notice when account is opened and annually

Consumer (1time thing) = initial notice only

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Regulation SP permits firms to disclose nonpublic personal information to unaffiliated third parties unless the customer has elected to…

Opt out

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Opt out methods under regulation SP must be…

Reasonable (note, having to write a letter is not considered reasonable).

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There is no requirement for the client’s signature on their account opening and suitability form, the only required signature is from ____________.

From the principal approving the account.

Note: the arbitration agreement and the W9 must be signed by the client and these are sometimes included in account opening paperwork.

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No FINRA member is permitted to execute a DPP transaction in a discretionary account without…

the prior written consent of the customer.

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What is a DPP roll-up and why would an investor want one?

DPP roll-up = the combination of limited partnerships into a single security.

The lure = the possibility of turning an illiquid DPP into more liquid security

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Under FINRA rules, members may not solicit votes from limited partners in a DPP roll-up unless… (2)

Payment amount is not contingent on the vote result

2. Payment does not exceed 2%

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In a discretionary account, the account owner gives the member trading authorization by… (1)

The authorization may be revoked or stopped at any time if…(3)

Signing a power of attorney.
Revoked in writing
Client dies
Client becomes mental

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Third party trading authorization (i.e. power of attorney) can be… (3)

Limited - trading only
Full - trading and money access
Durable - effective upon incompetence

***All types terminate upon the clients death.

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A trade is considered discretionary if the member… (3)

A trade is considered Not-held if the member…(2)

Chooses action (buy or sell)
Chooses asset
Chooses amount
Chooses price
Chooses time

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When a member chooses the price or time of a transaction (not-held order), the order is only good for the day unless…

It is marked GTC authorized in writing by the client

When must discretionary authority be approved by a principal?

When must a principal approve a discretionary trade?

Before the authority is exercised.

Promptly after execution.

If a member firm is recommending (or purchasing in a discretionary account) an issuer’s securities and a control relationship exist between the two, the relationship must be…

Disclosed in writing before the trade or on the confirm.

Custodial accounts have restrictions on what can be held in the accounts and when they transfer… (UTMA & UGMA)

UTMA = limited to securities and cash, transfers at age of majority 19

UGMA = can hold almost any asset! transfers between 21 and 25.

Note… Covered calls are acceptable but other options are not.

A fiduciary account is one where a third party acts on behalf of the account owner. These accounts include… (3)

The document used to appoint that individual is the __________ which is issued by the court and only good for 60 days.

Trust accounts
Guardian accounts
Discretionary

Certificate of Incumbency

All securities purchased on margin are purchased in _____________ name bc the member firm has lent a portion of purchase price to the account owner.

Street name.

What are the three basic components of the margin agreement?

Hypothecation Agreement - allows the firm to use the customer securities as collateral.
Credit agreement - how to compute interest rate based on the call loan rate.
Loan consent agreement - allows firm to lend out the customers securities for short sells (optional)

When must the member firm deliver the disclosure document thst addresses the risk associated with trading a margin?

At or before opening the account & annually

The broker-dealer is obligated to maintain a written statement setting forth the basis for determining if margin investments are…

suitable for each client

The mechanics of financing on margin: 1. The Client puts half of the cash down (50%) needed to purchase a security on margin. 2. The member firm takes stock from the client's account and delivers it to the bank as collateral for a cash loan (the other 50%). 3. The member firm gives the cash to the Clint to cover the remaining balance. Knowing this, what is the maximum amount of the customer's securities that can be pledged to the bank?

140% of the customers debit balance. (The amount loaned to the customer)

Although the firm can hypothecate _____________ % of the customers debit balance, the firm can never borrow from the bank more than ______________% of the debit balance it must reload to the customer.

140% = hypothecate 100% = reloan

A long margin acct is considered "restricted" if the equity in the account has fallen below ________________. Once the account is "restricted" there is no need to put up additional cash and more purchases can be made as long as ______________. When must additional funds be added to a restricted long margin account?

50%of the LMV. The required 50% is put down on any additional purchase. When the equity falls below 25% of LMV.

Under FINRA rules a list of borrowable securities for short sale purposes must be updated...

Daily

Initial Maintenance for Any Margin Account = Minimum Maintenance for a Long Account = Minimum Maintenance for a Short Account = Minimum Maintenance for a Combined Account = Maintenance Market Value for a Long Account = Maintenance Market Value for a Long Account =

Initial Maintenance for Any Margin Account = 50% Minimum Maintenance for a Long Account = 25% Minimum Maintenance for a Short Account = 30% Minimum Maintenance for a Combined Account = 5% Maintenance Market Value for a Long Account = DB/.75 Maintenance Market Value for a Short Account = CB/1.3

When determining the margin requirements for portfolio margin account, it is based on the risks of the portfolio as a whole, rather than a standardized percentage applied to each individual position. Any customer that wants to participate must...(2)

1. Be approved for uncovered options writing | 2. Acknowledge the risk disclosure in writing prior to the first transaction.

New issues trading for less than ___________ days in the secondary market are not marginable.

The account name or number must be on an order trade ticket before order execution. No change to the account designation can be made without the prior approval of a principal. If the name or number is changed then...

the facts surrounding the change must be documented in writing and retained for three years

In a DVP transaction, confirmation must be given to the customer no later than.... Also, it is the client's responsibility to give the member assurance that...

T+1 the bank knows what's going on.

If a customer fails to deliver securities by the settlement date, the member firm must buy in...

10 business days after the settlement date.

Under FINRA rules, customer mail can be held for up to ____________ if the customer is traveling domestically, or for up to _____________ if traveling abroad.

Under FINRA rules, customer mail can be held for up to 2 months if the customer is traveling domestically, and for up to 3 months if traveling abroad.

The SEC requires a _______________ of $500,000, and a ____________ of $1,500,000 for prime brokerage accounts.

The SEC requires a minimum equity of $500,000 for prime brokerage accounts. The minimum net capital requirement is $1,500,000.

Which Act requires broker/dealers to develop internal policies, procedures, and controls to ensure compliance with anti-money laundering laws.

The USA PATRIOT Act of 2001 requires broker/dealers to develop internal policies, procedures, and controls to ensure compliance with anti-money laundering laws.

Fails to deliver should be bought in after 10 business days from settlement. Under FINRA rules, a firm will be prohibited from selling a security as principal and buying that security as agent for a customer if it has a fail to deliver in that security that is how old?

60 days old or older

An affiliated relationship exists if there is a 10% or more ownership interest between a member and an issuer of securities. Disclosure of this relationship must be made to customers on any ____________. In addition, before purchasing these securities in a discretionary account, the member must __________________ .

Trade confirmations secure the customer's written permission