Customer Accounts - Customer Disclosure and Settlement Rules

Question 1

FINRA rule on sending confirm

Answer 1

send no later than SD

Question 2

What must confirm include?

Answer 2

name and address, firm name, firm address and phone, name of security, size of trade, price, trade date, settle date, accrued interest (if a bond), commission (agency trade), markup is not disclosed for principal trades except for NASDAQ stocks, “payment for order flow”, CUSIP, cash or margin.

Question 3

Settlement for US Government bonds and options

Answer 3

T + 1

Question 4

“sellers option” settlement

Answer 4

When seller needs more time to deliver than regular way. Settlement not before the 3rd business day after trade date. Also Buyers Option when buyer can’t pay by regular way.

Question 5

When, as and if issued

Answer 5

a confirm is sent with price and trade date, but not settlement date since it is not known.

Question 6

ACT system

Answer 6

automated comparison of transactions. compares buy and sell orders and “DK” if there is a difference. Must be matched within 20 minutes of getting DK. ACT open from 8:00-8:00 ET.

Question 7

good delivery requirements

Answer 7

must be endorsed (“assignment”) or have stock power or bond power. Signature must be with exact name unless it’s a corporation. Signature must be medallion guaranteed.
Stocks - delivery has to add up to 100 (round lot)
Bonds - $1000 face value minimum up to $100,000 max.
Mutilated - ok if they have validation letter saying they’ll be accepted.
partial delivery - is good as long as the remaining amount does not constitute an odd lot.
delivery of called security not ok unless entire issue has been called.

Question 8

delivery of book entry securities

Answer 8

done through DRS (direct registration system). run by DTC, clears and settles through NSCC. DWAC - electronic debit or credit to DRS on records of TA.

Question 9

Securities not DTC eligible

Answer 9

DPPs, Private Placements under Reg D, Rule 144 issues (except 144a issues traded on PORTAL). “Legend” stock = restricted stock certificate.

Question 10

Due bill

Answer 10

used to claim dividend that is mailed to the seller. Contra then sends due bill check.

Question 11

Uniform Reclamation Form

Answer 11

says what’s wrong with delivery. Reclamation for minor irregularities or when certificate is not good delivery - within 15 days. Major irregularities, wrong security, duplicate delivery, TA refused security, security is lost or stolen - within 30 months.

Question 12

Securities blotter

Answer 12

records receives and delivers

Question 13

fail to receive

Answer 13

can send buy-in notice. seller has 2 days to deliver. On 3rd day purchases can buy in and charge loss to seller (S+3).

Question 14

fail to deliver

Answer 14

Rule 204 - and fail to deliver in equity must be bought in T+3 for short sale, T+5 for long sale.

Question 15

control location

Answer 15

all fully paid and excess margin (>140% of debit balance that can be rehypothecated) must be segregated and held in safekeeping.

Question 16

How often is a vault count required?

Answer 16

Every 3 months

Question 17

Position statements for positions at clearing corps or custodians

Answer 17

Must be received once per month. Differences must be moved to a difference account within 7 days.

Question 18

To replace a lost certificate

Answer 18

need an affidavit of loss, indemnity bond in case the lost certificate is presented by another purchaser.

Question 19

1099 B

Answer 19

sale proceeds, cost basis, short term and long term tax withheld.

Question 20

inherited or gift cost basis

Answer 20

cost basis is the market value on the date of death or gift

Question 21

10K

Answer 21

broker dealers redistribute audited annual reports (10K) to shareholders.

Question 22

SEC Rule 17a-3

Answer 22

Which records should be retained

Question 23

SEC Rule 17a-4

Answer 23

How long to retain records

Question 24

Records that have to be kept for the life of the firm (last 2 years readily accessible for audit).

Answer 24

articles of incorporation or Partnership agreement, minutes of board/partnership meetings

Question 25

Records that have to be kept for 6 years (last 2 years readily accessible for audit).

Answer 25

Daily transaction records: purchase & sales blotter, cash receipt (check blotter) & disbursement blotter (check register), stock received & delivered blotter.

General ledger, customer account records (statements), stock record

Question 26

Records that have to be kept for 3 years

Answer 26

Everything else

Question 27

FINRA general ledger rule

Answer 27

each firm must designate a person responsible for each GL account. A person must oversee and control entries, make sure each entry is correct and accurate. Registered supervisor has to review account to determine it’s accurate.

Question 28

Definition of “current”

Answer 28

General ledger - posted no later than 10 business days after month end.
Blotters - posted no later than business day after event.
customer account records - posted no later than settlement date.
stock record - aggregate stock record - posted no later than day after settlement date.

Question 29

Default retention

Answer 29

If FINRA rules don’t specifically state a retention period then the default is 6 years.

Question 30

Retention of customer complaints

Answer 30

Kept of file in Office of Supervisory Jurisdiction for 4 years.