Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Series 7 > Customer Accounts 6% > Flashcards

Customer Accounts 6% Flashcards

You may prefer our related Brainscape-certified flashcards:
Series 7 Top-off Exam flashcards
0
Q

What are the main differences between JTWROS and TIC Accounts?

A
  • these are joint accounts
  • JTWROS
    • Joint Tenants with rights of Survivorship
    • each spouse owns and undivided 50% of the account
  • TIC
    • Tenants in common
    • unequal ownership is permitted
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
1
Q

What are the two types of discretion?

A
  • Limited
    • only authorize trades in the customer account
  • Full
    • may also withdraw cash and or securities from the account
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

How many donors may contribute to an UGMA/UTMA account?

A

-unlimited

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the current Regulation T margin requirement?

A

1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the difference between long and short maintenance rules? Who is responsible for their enforcement?

A
  • Long maintenance is 25% of long market value
    • 25% of stock price
    • debit balance/.75%
  • Short maintenance is 30% of the short market value
    • 30% of stock price
    • credit balance divided by 130%
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the sources of SMA? What are its uses?

A

1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How does SIPC define a customer?

A

1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

How much financial protection is provided for each securities customer under SIPC Coverage?

A

1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Key to this section?

A

understanding certain definitions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the cash account?

A
  • also called a “special cash account”
  • securities must be paid for in full
  • required for minors
  • for guardianship
  • must have sufficient cash in the account and must pay in 5 days(Reg T payment deadline)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Whose name are securities purchased in margin held?

A

-street name

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What info is required for a cash account

A
  • Customer’s name
  • address
  • dob
  • ssn
  • signature of the principal who approved the account
  • customer investment suitability information
    • financial info
    • investment objective
    • Risk Tolerance
    • Time Horizon
  • Patriot act requires a review of the customer’s gov issued id.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

when does a customer account become frozen?

A

-if they don’t pay for their securities in 5 days and the b/d doesn’t ask the SRO for an extension.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What happens when a customer’s account is frozen?

A
  • security is sold
  • account frozen for 90 days, can’t trade on margin, but can on cash
  • must have money in the account before b/d enters any buy orders
  • if a customer purchases a security and sells the same security without first paying for the original purchase, b/d freezes and won’t release the sales processes to the customer until the customer pays for the original purchase
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is the process for a customer to transfer an account from one broker to another?

A
  • Sign ACATS Form - Automated Customer Account Transfer Service
  • New b/d sends to old b/d
  • old b/d has one day to review and 3 days to transfer the funds
  • options within 7 days of expiration remain at the old b/d
  • under MSRB, b/d has 3 days to validate positions and 4 days to complete transfer
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What one or more things make a Trade a “Discretionary Trade”, as it applies to a RR making the choice?

A
  • The security
  • the quantity; or
  • the action (buy or sell)
  • Time and Price does not make a trade discretionay
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

How is a discretionary account opened?

A
  • Customer must sign a Discretionary account agreement

- RR’s principal must approve and then regularly review the account

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What securities are Fiduciaries typically limited to in Discretionary Accounts?

A
  • legal list - gov, muni, corporate debt (rated BBB and higher)
  • prudent man rule - conservative, prudent in investments, only investments that would be made by a prudent individual are allowed
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Describe an Individual Account

A
  • opened when one adult owns the entire account contents
  • b/d may discuss the account, and receive trade instructions from the owner only
  • must have advanced written permission from anyone else, even your spouse to discuss account with
19
Q

Describe “Prime Brokerage Accounts”

A
  • for wealthy individuals or portfolio managers who want simplified paperwork
  • receive one statement even though may trade by several different b/d
20
Q

Describe “Joint” Accounts

A

1

21
Q

What happens to account when an owner dies?

A
  • must be frozen
  • all open orders canceled
  • account must be marked “deceased”
  • Proper legal paperwork must be gathered
    • death cert
    • affidavit of domicile (in some states)
    • inheritance tax waiver form
    • letters testamentary (court-recognized will)
22
Q

Describe a “Corporate” Account

A

-to open
-must provide a copy of corporate resolution to the b/d
-identifies who can trade
-margin account
-provide a copy of its corporate charter, which must state the firm
may engage in margin activity

23
Q

Who uses DVP

A
  • Institutional Investors
  • Delivery vs Payment
  • b/d delivers and large commercial bank pays
  • must pay within 35 days
24
Q

Describe a “partnership account”

A
  • basic info required on each partner

- partnership agreement required - names who is authorized to trade

25
Q

Up to what age does the custodian retain control on a UTMA?

A

most states is 25, and says the transfer must be done by then

26
Q

Who is responsible for taxes on UGMA/UTMA

A
  • the minor
  • Younger that 19, if the taxable income is in excess of $1900, the excess is taxable at the parents highest marginal rate
  • Older than 19 (or 24) taxed at the minor’s tax rate
27
Q

When is payment due on all securities?

A
  • 5 biz days (regular way + 2
  • Except for
    • gov securities
    • cash trades made before 2:30PM
    • OPTIONS (the underlying securities settle the regular way)
      • must pay next day on all
28
Q

Describe “Margin Accounts”

A

-sign margin agreement
-contains a “hypothecation agreement” - customer agrees to
hypothecate or pledge the account securities as collateral for margin
or the loan from the b/d.
-customer agrees the b/d may re-hypothecate these securities as
collateral to a bank
-b/d re-hypothecates these securities when its borrows funds from
the bank to use for the customer’s margin
-margin interest is tax deductible
-except for muni, which are rarely traded on marging
-all short sales are traded on margin
-if an investor has a margin account, they have a cash account
-these do not account if the margin account has a debit balance

29
Q

Describe Regulation T

A
  • created under the Securities exchange act of 1934

- Fed Reserve Board was granted authority

30
Q

Margin Requirements under Federal T

A
  • 50% of the account must be cash or fully paid securities
  • this is hypothecation
  • New issues are ineligible for margin purchase within 30 days of distribution date
  • Mutual funds must be held is a cash account for 30 days before they can be used as collateral for a margin account
31
Q

What %down payment (under fed t) must be made for all equity positions, long or short?

A

50%

32
Q

Describe Marginable Securities

A
  • Securities that can be purchases on margin
  • FRB determines the marginable
  • NASDAQ national market system
  • certain otc stocks
  • new issues, including shares of open ended mutual funds are not
33
Q

Describe the “Minimum Equity Rule”

A
  • $2,000 required upon opening a margin account or up the first margin transaction
  • exception is if the securities is less than $2,000
  • short always requires $2,000
34
Q

Describe “short against the box:

A
  • investor has an unrealized gain and wishes to lock that in, but not to close the position yet
    • sell short the same stock
35
Q

Minimum Maintenance

A
  • if a stock trades between $5 and $17.50, the rule is $5 a share
  • if a stock trades between $2.50 and $5, the rule is 100%
  • If a stock trades at $2.50 or lower, the rule is $2.50 a share
36
Q

SMA

A
  • Special Misc Memorandum Account
  • it is not an account, and it is not an equity, it is a line of credit
  • SMA increases 50% of the market appreciation and on the short, 150% of the market decpreciation
37
Q

Equity Excess to a Current Reg T

A
  • only source of SMA related to equity
  • this is the excess amount to margin against
  • Long:
    • 1/2 LMV less the DB = SMA(if there has been a market increase)
  • Short side:
    • Equity - 1/2 SMV = SMA(if there has been a market decrease)
38
Q

Uses of SMA

A
  • Buying Power - SMA * 2
    • you can buy $2 of stock for every $1 of sma
  • Borrowing Power - SMA * 1
    • you can borrow
39
Q

SMA - Portfolio Margin Account

A
  • professional money manager who qualifies for uncovered option writing
  • minimum equity requirement is $100,000
  • allowed a higher level of leverage than a normal margin account
40
Q

SMA - Day Trading Account

A
  • for pattern day traders
  • buys and sells securities on the same day and has done so 4 days in 4 different securities over the last 5 days
  • minimum equity position of $25,000
  • cannot use a cross lien, must be the day trader’s dollars
  • buying power equals 4 times excess over maintenance
41
Q

What is a cross lien?

A

1

42
Q

SIPC

A

-Securities Investor Protection Act of 1970
-procedures for the protection of the customer funds in the event the b/d becomes insolvent.
-Created SIPC “Securities Investor Protection Corporation”
-Collects assessments from broker/dealers in order to protect
customers from loss due to a failed broker/dealer

43
Q

SIPC Membership

A
  • Insures accounts up to $500,000, including up to $250,000 in cash
  • covers losses due to the b/d bankruptcy only.
  • must by a blanket fidelity bond to cover employee theft or loss of customer securities
    • currently $25,000, soon increase to $100,000
44
Q

SIPC - Coverage

A
  • A joint account is eligible for $500,000 each
  • IRA rollover account is a separate account
  • commodities are not covered by SIPC
45
Q

Customer Claims

A

-Street name
-the securities are readily negotiable without the customer’s
endorsement
-only securities held in the street name are SIPC eligible
-Max Limit on Claims
-b/d generally carry additional insurance coverage in excess of SIPC
-Whatever isn’t repaid through liquidation, SIPC, and then add’l
insurance, the customer becomes a general creditor of the firm

Series 7 (12 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions