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Series 99 > Customer Accounts - Account Basics > Flashcards

Customer Accounts - Account Basics Flashcards

1
Q

What is the required information on the new account form?

A 
Name and Address
Cash or Margin
Date of birth
SSN or TIN
occupation and employer
Are they employed by another financial institution?
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2
Q

What are the 4 critical pieces of information used for the Customer Identification Program?

A

Customer name, address, SSN, DOB

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3
Q

When must customer ID be verified using the 4 pieces of critical information?

A

Within a reasonable amount of time after account opening.

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4
Q

What is “documentary” verification?

A

Matching the client’s information to an unexpired drivers license or passport.

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5
Q

What is “non documentary” verification?

A

Matching the client’s information to a database like Experion or Transunion.

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6
Q

Suitability

A

Firm must make a reasonable effort to obtain this information before recommending a transaction (does not apply to unsolicited orders):
Financial status, tax status, investment objectives, any other information the firm deems appropriate.

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7
Q

Suitability rules don’t apply to accounts that invest in…

A

options, structured products, illiquid securities, pattern day trade. These have specific suitability and disclosure requirements.

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8
Q

Options New Account Form

A

used for option account set up

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9
Q

Options Disclosure Document

A

client must receive before 1st trade. The date the disclosure is sent has to be added to the Options New Account form

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10
Q

To open an options account the client must be asked…

A

Investment objective, investment experience, financial situation, financial needs, marital status, net worth, liquid net worth, estimated annual income. The client must sign the Options Agreement based on the reps assessment of these items.

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11
Q

When signed Options Agreement must be returned.

A

Within 15 days of account opening. If not returned only closing transactions are permitted.

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12
Q

When Options Agreement must be amended.

A

Any time client’s financial situation changes.

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13
Q

Structured Product

A

Generally have a “bond” portion that pays interest based on an underlying index and a derivative component that lets the client sell the security back to the issuer at maturity.

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14
Q

“Reasonable basis” suitability

A

suitability determination required by FINRA that firms perform on structured products to evaluate the products risks and rewards. FINRA encourages firms to use the same suitability standards that are used for options.

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15
Q

Illiquid securities

A

non-traded REITs, hedge funds and LPs. Customer must be advised that the investment is not liquid, but they are not required to sign anything.

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16
Q

Day trading account

A

4 or more day trades in a 5 business day period. Same information is collected as for options accounts, plus “trading experience”. Firm must furnish customer disclosure stating that day trading is very risky and firm will get substantial commissions.

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17
Q

What are standing instructions?

A

For day trading accounts they state what to do with cash dividends, should free cash balances sweep, and payment instructions.

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18
Q

Principal account approval

A

Series 24 is required to approve account. Series 4 is required to approve options account. Series 9/10 is for branch managers to approve securities and options accounts.

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19
Q

Is a client signature required on the new account form?

A

No

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20
Q

Arbitration agreement

A

Usually also required by firms. Must be clear that the client is giving up the right to sue. Must give client copy within 30 days and they must sign the acknowledgement.

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21
Q

SEC Rule 17a-3

A

Required records for customer account are: Name, address, TIN, *phone #, DOB, occupation, *annual income, *net worth, investment objectives. *aren’t on the new account form.

22
Q

When must customer receive copy of account record?

A

Within 30 days of account opening and every 36 months after that. If customer changes name, address or investment objective a notice must be sent to the customer and the rep within 30 days.

23
Q

Margin accounts

A

Securities are held in “street name” (name of brokerage firm). Customer is given a risk disclosure form.

24
Q

Joint accounts

A

JTWROS - “undivided interest” - if one person dies the other becomes the sole owner. Tenants in Common - each person has a percent ownership. TOD - not really a joint account - ownership passes to beneficiary upon death.

25
Q

Corporate Accounts

A

Corporate charter and Corporate resolution are both required for account opening.

26
Q

Partnership Accounts

A

Must have partnership agreement that allows the opening of the account and names the partners authorized to trade. Most partnership agreements are amended annually.

27
Q

Third Party trading authorization

A

Limited - only allows buy or sell orders, no money can be withdrawn. Full - allows for money withdrawal, but checks must be in the customers name.

28
Q

durable Power of Attorney

A

if the grantor becomes mentally incompetent the POA retains control of the account.

29
Q

Fiduciary Accounts

A

Trust, Guardian, Administrator of Estate, Executor of Estate, Conservator for incompetent, receive in bankruptcy. Only the fiduciary is allowed to trade. They can’t give POA to someone else. Documents must specifically state if margin accounts are allowed. Trades must follow “prudent man” or “legal list” rules.

30
Q

Trust accounts

A

must have a copy of the trust agreement.

31
Q

Guardian account

A

must have a copy of the court order appointing the guardian. Account cannot be opened in the name of the minor or incompetent. Account has to be opened within 60 days of the appointment.

32
Q

Discretionary accounts

A

Discretionary trades if broker chooses anything besides price and time of execution. Principal must approve all trades by the end of the day.

33
Q

Cancel rebills

A

must be approved in writing by the branch manager or compliance officer.

34
Q

UGMA UTMA

A

any adult can open the account. Cannot hold bearer securities, no cash balance - must be in MMKT, one custodian per minor, margin has to be specifically allowed by the state, gifts are irrevocable, custodian can be reimbursed for expenses, no third party trading authorization. UGMA - gifts can be bank deposits, securities or insurance. Goes to minor at age 18. UTMA - can be any asset. Goes to minor at age 21.

35
Q

“Wrap” accounts

A

one fee is charged for trade execution, asset allocation and rebalancing.

36
Q

Prime brokerage accounts

A

Prime broker maintains custody and provides financing. Trades are directed to whatever executing broker the client wants (“trading away”). Used by institutional accounts like hedge funds. The standing instructions on the account detail the payment and delivery instructions.

37
Q

How to deposit stock certificate in an account

A

Certificate can’t be signed. Must be accompanied by a stock power. It’s placed in the margin account in street name and the loan value can be used to make purchases.

38
Q

Trade confirmations

A

must be sent no later than settle date

39
Q

Mail

A

can only be held up to 3 months

40
Q

ACAT or TIF

A

Must have client signature, retirement accounts need custodian signature. Upon receipt the carrying firm has one day to confirm the positions and the account is frozen for trading. Transfers must be completed within 3 days. Fails to receive have to be bought in and delivered within 10 days. Transfer can’t be held up over dispute about securities valuation or money balances. Reclaims must be researched within 2 days. They are deemed accepted on the 3rd day.

41
Q

Closing account due to death. To transfer to beneficiary you need…

A

Death certificate, copy of will, copy of probate court filing, proof of domicile & inheritance tax waivers (which state gets tax). JTWROS or TOD - no will is required, only copy of death certificate. POA - gets revoked when owner dies.

42
Q

after account is closed

A

statements must be retained for 6 years and supporting records for 3 years.

43
Q

Escheatment

A

when an account has been dormant for 5 years

44
Q

Brokerage Firm departments

A

order dept - receives orders, checks for completeness, transmits trade for execution.
purchase & sales - sends confirm, records on firm ledger and moves to customer acct record on settle date.
margin - keeps customer acct records, stock positions.
cashier - receives and delivers cash and securities.
proxy dept
dividend - allocates divs to client accts
stock record - keeps record of aggregate stock positions.
Reorg
Controller/FinOp - oversees accounting and prepares financial and operational reports filed with FINRA and SEC.

45
Q

PATRIOT Act

A

firms must establish written AML programs, ongoing employee training, report suspicious activity. Higher scrutiny of customer accounts whose country isn’t a member of Financial Action Task Force (FATF), deal in countries with bank secrecy laws or operate cash intensive business.

46
Q

NRA

A

firm must obtain passport # and necessary US tax forms

47
Q

OFAC list of SDNs

A

Patriot Act requires checking against this list. If a 3rd party vendor is used they provide verification within 24 hours. Transactions during this time that can’t be reversed aren’t allowed. If “blocked” the account must be frozen. Client name also has to be checked against the terrorist watch list.

48
Q

SAR reports

A

Must be filed within 30 days of suspicious activity.

49
Q

FINRA AML rules

A

firms must have policies to detect suspicious activity, annual independent testing for compliance, designate person responsible for day to day operations and control of program, provide ongoing training, should include “KYC” procedures. 3 areas of suspicious activity: wires, deposits, monetary instruments. SARs system should be centralized with a person designated to decide if activity is reportable.

50
Q

Prohibited activities

A

“painting the tape” - reports of increasing or decreasing stock prices that aren’t real.
wash sales - buying and selling the same stock without a real change of ownership.

Series 99 (6 decks)

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