FC Chapter 14 Flashcards
What is the maximum time period for reclamation due to delivery of a security which had been reported stolen or lost?
30 months
A client buys XNX stock and authorizes the BD to pay by deducting cash from his account. When is the trade completed?
When the BD journals the payment out of the client’s account
True or False: Completion of a transaction occurs immediately after a client enters her trade.
False
True or False: On completion of a DVP/RVP transaction, the customer must receive a trade confirmation.
True
Who is qualified to endorse a mutilated certificate or coupon?
The issuer or one of its agents (transfer or paying agent or trustee)
What specialized services does a prime broker offer to its clients?
Custody, securities lending, margin financing, clearing, processing, research, customized reporting
When using the transfer and hold method of handling assets, securities must still be ___________.
When using the transfer and hold method of handling assets, securities must still be segregated.
If a non-transferable asset is sold, the carrying BD has _____ business days to pay the client.
If a non-transferable asset is sold, the carrying BD has five business days to pay the client.
Before accepting a DVP or RVP order, a BD must receive the name of the client’s ______ and the client’s ______________.
Before accepting a DVP or RVP order, a BD must receive the name of the client’s agent and the client’s account number.
Trades involving corporate or municipal securities settle by the _______________ day following the trade date (T + __).
Trades involving corporate or municipal securities settle by the second business day following the trade date (T + 2)
True or False: Account transfers must be in whole.
False. Both full and partial transfers are acceptable.
What securities settle in two business days after the trade date?
Corporate securities (stocks and bonds) and municipal securities
For sales, when is a trade completed if the security is NOT in the BD’s possession at the time of sale?
When the security is delivered to the BD
Explain a prime-brokerage arrangement.
A situation in which multiple BDs execute a client’s trades and report them to one independent BD for settlement
After notification of the buy-in has been delivered, the actual buy-in may not occur for ____ business days.
After notification of the buy-in has been delivered, the actual buy-in may not occur for 2 business days.
What would cause a potential buy-in?
A selling BD failing to deliver securities to the buying BD
For sales, when is trade completion if the client delivers the security prior to the due date?
When the BD makes payment into the client’s account (usually settlement date)
The maximum time period for reclamation due to delivery of the wrong security is ____ days.
The maximum time period for reclamation due to delivery of the wrong security is 15 days.
If securities are in transit and are identified as such, the buy-in will be delayed for ______ calendar days.
If securities are in transit and are identified as such, the buy-in will be delayed for seven calendar days.
Whose authentication is acceptable for mutilated securities?
The transfer agent, registrar, trustee, or issuer
The minimum equity for a prime brokerage client is $_________.
The minimum equity for a prime brokerage client is $500,000.
How often must member firms send clients an account statement?
At least quarterly
If a fail-to-deliver or fail-to-receive occurs, which party to the trade is responsible for a money difference?
The party that caused the failure
To assist in settlement and clearance, all FINRA members must also be members of a _____________ and the ____.
To assist in clearance and settlement, all FINRA members must also be members of a clearing corp. and the DTC.
If a dividend is paid on stock that has been loaned, who is responsible for the dividend payment?
The borrower of the stock is responsible for all distributions to the owner of the shares.
A company must notify FINRA of an upcoming dividend or stock split ____ days prior to the record date.
A company must notify FINRA of an upcoming dividend or stock split 10 days prior to the record date.
When are trade comparisons on cash transactions sent to the contra-broker?
On the trade date
XYZ’s record date is Thursday, May 3. With a regular-way trade, when could Emma sell her stock, but keep the dividend?
On Wednesday, May 2 or later. She must remain the owner at least through May 3 to keep the dividend.
A client buys XNX stock and pays the BD a portion of the purchase price on the due date. When is the trade completed?
When payment is made
What is the benefit of ACATS?
It replaces a manual account transfer system with a fully automated and standardized one.
True or False: Once an ACATS request is received, the carrying BD may continue to effect transactions in the account.
False. The account is frozen.
If a buy-in or sell-out is completed, who is responsible for a potential money difference?
The failing BD
Give some examples of non-transferable assets.
Carrying firm proprietary assets, LP interests in retail account, products of third party not connected to receiving BD
What is required for a member firm to send confirmations and statements to a third party?
Written instructions from the client
Based on written request, what is the maximum period that a B/D may hold customer correspondence?
Three months. To exceed three months, the customer must provide the B/D with a valid reason for the request.
True or False: DTCC is considered a good control location for securities.
True
ABC sets a record date of Wednesday, Oct. 19. Would a buyer of ABC on Tuesday, October 18 be entitled to the dividend?
No, the investor must own (trade settles) on or before the record date. This trade would not settle until October 20.
What entity is the parent of the National Securities Clearing Corporation (NSCC)?
The Depository Trust and Clearing Corporation (DTCC)
By what date must a clearing firm send to the introducing firm the list of all reports that it can generate?
By July 1st. Thereafter, the introducing firm may request any of the reports listed.
True or False: Securities held by a transfer agent are considered to be in a good control location.
True, provided the securities are in transfer for less than 40 days. However, after 40 days, verification of the agent is needed.
A BD that holds a customer’s cash and securities is known as a ______________.
A BD that holds a customer’s cash and securities is known as a carrying firm.
If a client wants to transfer an account containing a non-transferable asset, what is the carrying firm’s obligation?
Notify the client and give her the option to maintain the asset in an account or dispose of the asset
True or False: Through the use of a prime broker, executing BDs are prevented from determining a client’s strategy.
True
True or False: In an RVP transaction, payment is made to a client when the securities are received and accepted.
True
If a selling client fails to deliver the securities within 10 business days following settlement, what may the BD do?
The BD may immediately buy in the client to close out the trade.
Jim sells ABC stock; however, the stock is not in the BD’s possession at the time of sale. When is the trade completed?
When the security is delivered to the BD
How many business days is a carrying BD given to validate/protest a transfer, and if validated, to complete it?
Carrying BDs have one business day to validate/protest; and if validated, three business day to complete it.
True or False: A hedge fund is an example of a client that may benefit from a prime-brokerage arrangement.
True
Jim calls his RR to request that his account-related mail be held while he is on vacation. What is the correct response?
Until a written request is received, no action may be taken. Written, not verbal, instructions are required.
If using cash settlement, what is the last possible date to purchase a security and still be entitled to the dividend?
The record date, since cash settlement indicates same-day settlement
How are transactions completed among members of the DTCC?
Through computerized book entry
In order for a BD to operate as a prime broker, its _____________________ must be notified.
In order for a BD to operate as a prime broker, its DEA (Designated Examining Authority) must be notified.
For purchases, when is a trade completed if the buyer pays any portion of the purchase price on the due date?
When the payment is made
True or False: Continuous Net Settlement (CNS) allows for one check for purchases and one net delivery amount for sales.
True
Upon validation of a transfer, the transfer must be completed within ___ business days.
Upon validation of a transfer, the transfer must be completed within 3 business days.
Which party receives a dividend for a short sale effected on the ex-dividend date?
The lender of the stock
When a request to transfer an account is received, how long does the firm have to validate or protest the transfer?
1 business day
Define marking to the market.
The adjustment between current market price and original contract price
Upon receipt, to whom are written complaints forwarded?
A supervising principal
Where do member firms keep written complaints including the original copy, the firm’s response, and other action taken?
At an office of supervisory jurisdiction (OSJ)
For the exam, name the three market holidays that could impact a trade’s settlement date.
January 1, July 4, and December 25
True or False: An ACATS transfer may be cancelled by the client.
True, provided a written request is made by the client.
What would cause a potential sell-out?
A buying BD failing to accept delivery of securities on the settlement date
What are three different methods of handling customer assets?
Holding in street name, transfer and hold, and transfer and ship
For accrued interest purposes, how are days computed for corporate bonds?
Every month has 30 days and the year consists of 360 days.
If validating a transfer, what restrictions does the carrying firm place on the account?
The account is frozen, open orders are cancelled, and no new orders are accepted.
True or False: When the transfer and ship method of handling client assets is used, a fee may be charged.
True
Client positions must be segregated from ______ positions.
Client positions must be segregated from firm positions.
A written customer complaint is retained for _____ years from the date of its resolution.
A written customer complaint is retained for four years from the date of its resolution.
What must be noted by a client to prevent her buy limit and sell stop orders from being reduced on the ex-dividend date?
Do Not Reduce (DNR)
The ex-dividend date occurs ___ business day(s) ______ the record date.
The ex-dividend date occurs one business day before the record date.
With FINRA approval, for how long may delivery of Direct Participation Program interests be delayed?
For up to 35 days
When executing a COD order, who receives the confirmation of the transaction?
The client (unless otherwise instructed)
True or False: In a DVP transaction, payment is made by a client when the securities are delivered and accepted.
True
True or False: Any type of client may use receipt versus payment (RVP) when selling securities to a BD.
True. However, RVP trades are most commonly used by institutional clients.
Assuming regular-way settlement, if a trade occurs on or after the ex-dividend date, the _______ receives the dividend.
Assuming regular-way settlement, if a trade occurs on or after the ex-dividend date, the seller receives the dividend.
If a clearing member receives a complaint from a customer of an introducing broker, what procedure must be followed?
The complaint is sent to the introducing Broker, the firm’s SRO, with a notification to the client describing these actions.
To have a prime broker relationship, what amount of equity must a customer maintain?
$500,000 ($100,000 for an investment advisor)
What may a carrying firm do when transfers arise as a result of RRs switching firms and taking clients?
Attempt to convince the clients to stay
What method of handling assets registers shares in a client’s name and delivers them to the client in certificate form?
Transfer and ship
For reclamation purposes, whose responsibility is it to resolve the problem?
The delivering dealer must promptly deliver securities in good deliverable form.
True or False: An introducing BD is obligated to provide its clients with the detailed terms of its clearing agreement.
False. An introducing firm is only obligated to disclose the existence of an agreement.
The minimum equity for an investment adviser utilizing a prime-brokerage relationship is $_________.
The minimum equity for an investment adviser utilizing a prime-brokerage relationship is $100,000.
A buy-in due to a short security difference must be completed no later than ____ days from discovery.
A buy-in due to a short security difference must be completed no later than 45 days from discovery.
If non-transferable assets are being sold at the time of transfer, who discloses any surrender charges to the client?
The carrying (former) BD
Account statements must be sent to customers at least ____________.
Account statements must be sent to customers at least quarterly.
To avoid a close-out, a selling client must deliver the securities to the BD within how many days from settlement?
10 business days
True or False: The issuing corporation determines the declaration, payment, record, and ex-dividend dates.
False. Exchange rules determine the ex-dividend date based on the corporation’s determination of the record date.
By what date must a buyer own stock to be entitled to a dividend or stock split?
The record date
With written instructions from a client, for how long may customer mail be held by a member firm?
Up to 60 days (2 months) for domestic travel and 90 days (3 months) for international travel
List some acceptable reasons for protesting an account transfer.
The account is flat with no assets, invalid signature or account number, additional documentation required, no SS number
True or False: A client of a BD may be subject to a close-out for failing to deliver securities that have been sold.
True
If a discrepancy claim arises after the transfer, the carrying firm must resolve it within _____ business days.
If a discrepancy claim arises after the transfer, the carrying firm must resolve it within five business days.
True or False: A valid reason to reject an ACATS transfer includes the fact that the account is the firm’s largest.
False
_______________ following the trade date is settlement for trades of U.S. Government securities or option contracts.
1 business day (T+1) following the trade date is settlement for trades of U.S. Government securities or option contracts
According to FINRA rules, written customer complaints must be maintained for ____ years.
According to FINRA rules, written customer complaints must be maintained for four years.
When a company executes a stock split, when is the ex-split date?
The day after the payable date
When is settlement for a transaction using a seller’s option settlement?
On a date that is agreed on by both parties, but not earlier than three business days after the trade date
True or False: When-issued trades are marked to the market.
True
A BD may allow a selling client up to ____ business days from ___________ to deliver the securities before closing out.
A BD may allow a selling client up to 10 business days from settlement to deliver the securities before closing out.
Mary sells ABC stock and delivers the shares prior to the due date. When is the trade completed?
When the BD makes payment into the client’s account (usually the settlement date)
What services does the Depository Trust and Clearing Corporation (DTCC) provide to its members?
Clearing, settlement, and information services
A DVP transaction must be completed within ____ calendar days.
A DVP transaction must be completed within 35 calendar days.
True or False: For clients whose assets are in street name, proxy materials must be forwarded to the client.
True, provided the distributing corporation pays for the mailing expenses.
True or False: On a stock’s ex-dividend date, certain types of orders are reduced.
True. Both buy limit and sell stop orders for the stock are reduced.
What is a BD required to obtain before accepting a customer’s DVP order to buy?
The name of the customer’s agent (bank)
A client buys XNX stock and pays prior to the due date. When is the trade completed?
When the firm delivers the security into the client’s account (usually the settlement date)
When are DK notices used?
When a trade comparison is received by one firm, but there is no corresponding trade
True or False: Disputes over money balances/security positions are an acceptable reason to dispute the transfer.
False
For purchases, when is trade completion if the client makes payment prior to the due date?
When the BD delivers the security into the client’s account (usually settlement date)
When making delivery of certificates, what denominations are acceptable?
Physical certificates must be in multiples of 100 shares or in units that easily convert into 100 shares.
The ex-dividend date is ___ business days prior to the record date.
The ex-dividend date is one business day prior to the record date.
When are trade comparisons sent to the contra-broker?
No later than the trade date + 1
If a deliverable security is not delivered through an ACATS transfer, how is it treated?
As a fail-to-deliver
Notice of a buy-in may not be delivered to the seller sooner than ____ business day after settlement.
Notice of a buy-in may not be delivered to the seller sooner than 1 business day after settlement.
Option positions due to expire in the next ______ business days will not be transferred with the rest of the account.
Option positions due to expire in the next seven business days will not be transferred with the rest of the account.
Delivery vs. Payment (DVP) requires payment to be made no more than ____ calendar days from the transaction.
Delivery vs. Payment (DVP) requires payment to be made no more than 35 calendar days from the transaction.
Tony sells ABC stock and the stock is currently in the BD’s possession. When is the trade completed?
When the BD transfers the stock from the client’s account
If a written complaint is received from a customer, what must be kept in the firm’s complaint file?
The original complaint, the firm’s response, as well as any action taken
A buy-in may not be initiated by the buyer until ______ business days following the settlement date.
A buy-in may not be initiated by the buyer until three business days following the settlement date.
What details are covered by a clearing agreement?
Opening/approval of accounts, sending confirmation/statements, and receipt/delivery of funds and securities
True or False: An account transfer may be rejected due to an invalid Social Security number.
True
True or False: For a DVP transaction, the client’s agent (bank) must be informed of the transaction details.
True
In a transaction, when is the prime broker identified to the clearing corporation (DTC)?
No later than 90 minutes from the time of the transaction
If a stock is sold before the ex-dividend date, but not delivered by the record date, what must be attached?
A due bill
Assuming regular-way settlement, if a trade occurs before the ex-dividend date, the _______ receives the dividend.
Assuming regular-way settlement, if a trade occurs before the ex-dividend date, the buyer receives the dividend.
Explain the transfer and ship method of handling customer assets.
The shares are registered in the client’s name and delivered to the client in certificate form
What types of bonds are considered to trade flat (without accrued interest)?
Zero-coupon bonds and income bonds
If a client’s account contains non-transferable assets, what two choices is she offered as an alternative to transfer?
Liquidation (with payment made within five business days) or retaining the assets with the carrying BD
For purchases, when is a trade completed if the buyer pays through a bookkeeping entry?
When the BD makes the bookkeeping entry
By what date must a clearing firm provide a list of available reports to the introducing broker (IB)?
No later than July 1st of each year
True or False: An introducing BD must provide clients with written notification regarding its clearing agreement.
True
For a buyer to be eligible for a stock’s cash dividend, the purchase must be made prior to the ______________ date.
For a buyer to be eligible for a stock’s cash dividend, the purchase must be made prior to the ex-dividend date.
What type of transaction is being executed when a client purchases securities with payment made by a third party?
Delivery versus payment (DVP) or collect on delivery (COD)
Based on written instructions, a B/D may hold customer correspondence for _____ months.
Based on written instructions, a B/D may hold customer correspondence for three months.
For sales, when is a trade completed if the security is in the BD’s possession at the time of sale?
When the BD transfers the security from the client’s account
For active accounts, account statements must be sent ____________.
For active accounts, account statements must be sent monthly.
If the buyer rejects the delivery of securities, how soon may the selling firm sell out the position?
At any time following rejection, the seller may sell out without prior notice.
When must a BD buy in the securities if a selling client fails to deliver securities?
No later than 10 business days from settlement of the transaction
Who determines settlement on a when issued transaction?
FINRA’s Uniform Practice Code Committee
