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Series 24 Group Share > FC Chapter 14 > Flashcards

FC Chapter 14 Flashcards

1
Q

What is the maximum time period for reclamation due to delivery of a security which had been reported stolen or lost?

A

30 months

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2
Q

A client buys XNX stock and authorizes the BD to pay by deducting cash from his account. When is the trade completed?

A

When the BD journals the payment out of the client’s account

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3
Q

True or False: Completion of a transaction occurs immediately after a client enters her trade.

A

False

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4
Q

True or False: On completion of a DVP/RVP transaction, the customer must receive a trade confirmation.

A

True

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5
Q

Who is qualified to endorse a mutilated certificate or coupon?

A

The issuer or one of its agents (transfer or paying agent or trustee)

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6
Q

What specialized services does a prime broker offer to its clients?

A

Custody, securities lending, margin financing, clearing, processing, research, customized reporting

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7
Q

When using the transfer and hold method of handling assets, securities must still be ___________.

A

When using the transfer and hold method of handling assets, securities must still be segregated.

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8
Q

If a non-transferable asset is sold, the carrying BD has _____ business days to pay the client.

A

If a non-transferable asset is sold, the carrying BD has five business days to pay the client.

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9
Q

Before accepting a DVP or RVP order, a BD must receive the name of the client’s ______ and the client’s ______________.

A

Before accepting a DVP or RVP order, a BD must receive the name of the client’s agent and the client’s account number.

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10
Q

Trades involving corporate or municipal securities settle by the _______________ day following the trade date (T + __).

A

Trades involving corporate or municipal securities settle by the second business day following the trade date (T + 2)

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11
Q

True or False: Account transfers must be in whole.

A

False. Both full and partial transfers are acceptable.

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12
Q

What securities settle in two business days after the trade date?

A

Corporate securities (stocks and bonds) and municipal securities

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13
Q

For sales, when is a trade completed if the security is NOT in the BD’s possession at the time of sale?

A

When the security is delivered to the BD

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14
Q

Explain a prime-brokerage arrangement.

A

A situation in which multiple BDs execute a client’s trades and report them to one independent BD for settlement

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15
Q

After notification of the buy-in has been delivered, the actual buy-in may not occur for ____ business days.

A

After notification of the buy-in has been delivered, the actual buy-in may not occur for 2 business days.

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16
Q

What would cause a potential buy-in?

A

A selling BD failing to deliver securities to the buying BD

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17
Q

For sales, when is trade completion if the client delivers the security prior to the due date?

A

When the BD makes payment into the client’s account (usually settlement date)

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18
Q

The maximum time period for reclamation due to delivery of the wrong security is ____ days.

A

The maximum time period for reclamation due to delivery of the wrong security is 15 days.

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19
Q

If securities are in transit and are identified as such, the buy-in will be delayed for ______ calendar days.

A

If securities are in transit and are identified as such, the buy-in will be delayed for seven calendar days.

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20
Q

Whose authentication is acceptable for mutilated securities?

A

The transfer agent, registrar, trustee, or issuer

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21
Q

The minimum equity for a prime brokerage client is $_________.

A

The minimum equity for a prime brokerage client is $500,000.

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22
Q

How often must member firms send clients an account statement?

A

At least quarterly

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23
Q

If a fail-to-deliver or fail-to-receive occurs, which party to the trade is responsible for a money difference?

A

The party that caused the failure

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24
Q

To assist in settlement and clearance, all FINRA members must also be members of a _____________ and the ____.

A

To assist in clearance and settlement, all FINRA members must also be members of a clearing corp. and the DTC.

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25
Q

If a dividend is paid on stock that has been loaned, who is responsible for the dividend payment?

A

The borrower of the stock is responsible for all distributions to the owner of the shares.

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26
Q

A company must notify FINRA of an upcoming dividend or stock split ____ days prior to the record date.

A

A company must notify FINRA of an upcoming dividend or stock split 10 days prior to the record date.

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27
Q

When are trade comparisons on cash transactions sent to the contra-broker?

A

On the trade date

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28
Q

XYZ’s record date is Thursday, May 3. With a regular-way trade, when could Emma sell her stock, but keep the dividend?

A

On Wednesday, May 2 or later. She must remain the owner at least through May 3 to keep the dividend.

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29
Q

A client buys XNX stock and pays the BD a portion of the purchase price on the due date. When is the trade completed?

A

When payment is made

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30
Q

What is the benefit of ACATS?

A

It replaces a manual account transfer system with a fully automated and standardized one.

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31
Q

True or False: Once an ACATS request is received, the carrying BD may continue to effect transactions in the account.

A

False. The account is frozen.

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32
Q

If a buy-in or sell-out is completed, who is responsible for a potential money difference?

A

The failing BD

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33
Q

Give some examples of non-transferable assets.

A

Carrying firm proprietary assets, LP interests in retail account, products of third party not connected to receiving BD

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34
Q

What is required for a member firm to send confirmations and statements to a third party?

A

Written instructions from the client

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35
Q

Based on written request, what is the maximum period that a B/D may hold customer correspondence?

A

Three months. To exceed three months, the customer must provide the B/D with a valid reason for the request.

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36
Q

True or False: DTCC is considered a good control location for securities.

A

True

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37
Q

ABC sets a record date of Wednesday, Oct. 19. Would a buyer of ABC on Tuesday, October 18 be entitled to the dividend?

A

No, the investor must own (trade settles) on or before the record date. This trade would not settle until October 20.

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38
Q

What entity is the parent of the National Securities Clearing Corporation (NSCC)?

A

The Depository Trust and Clearing Corporation (DTCC)

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39
Q

By what date must a clearing firm send to the introducing firm the list of all reports that it can generate?

A

By July 1st. Thereafter, the introducing firm may request any of the reports listed.

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40
Q

True or False: Securities held by a transfer agent are considered to be in a good control location.

A

True, provided the securities are in transfer for less than 40 days. However, after 40 days, verification of the agent is needed.

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41
Q

A BD that holds a customer’s cash and securities is known as a ______________.

A

A BD that holds a customer’s cash and securities is known as a carrying firm.

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42
Q

If a client wants to transfer an account containing a non-transferable asset, what is the carrying firm’s obligation?

A

Notify the client and give her the option to maintain the asset in an account or dispose of the asset

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43
Q

True or False: Through the use of a prime broker, executing BDs are prevented from determining a client’s strategy.

A

True

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44
Q

True or False: In an RVP transaction, payment is made to a client when the securities are received and accepted.

A

True

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45
Q

If a selling client fails to deliver the securities within 10 business days following settlement, what may the BD do?

A

The BD may immediately buy in the client to close out the trade.

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46
Q

Jim sells ABC stock; however, the stock is not in the BD’s possession at the time of sale. When is the trade completed?

A

When the security is delivered to the BD

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47
Q

How many business days is a carrying BD given to validate/protest a transfer, and if validated, to complete it?

A

Carrying BDs have one business day to validate/protest; and if validated, three business day to complete it.

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48
Q

True or False: A hedge fund is an example of a client that may benefit from a prime-brokerage arrangement.

A

True

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49
Q

Jim calls his RR to request that his account-related mail be held while he is on vacation. What is the correct response?

A

Until a written request is received, no action may be taken. Written, not verbal, instructions are required.

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50
Q

If using cash settlement, what is the last possible date to purchase a security and still be entitled to the dividend?

A

The record date, since cash settlement indicates same-day settlement

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51
Q

How are transactions completed among members of the DTCC?

A

Through computerized book entry

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52
Q

In order for a BD to operate as a prime broker, its _____________________ must be notified.

A

In order for a BD to operate as a prime broker, its DEA (Designated Examining Authority) must be notified.

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53
Q

For purchases, when is a trade completed if the buyer pays any portion of the purchase price on the due date?

A

When the payment is made

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54
Q

True or False: Continuous Net Settlement (CNS) allows for one check for purchases and one net delivery amount for sales.

A

True

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55
Q

Upon validation of a transfer, the transfer must be completed within ___ business days.

A

Upon validation of a transfer, the transfer must be completed within 3 business days.

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56
Q

Which party receives a dividend for a short sale effected on the ex-dividend date?

A

The lender of the stock

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57
Q

When a request to transfer an account is received, how long does the firm have to validate or protest the transfer?

A

1 business day

58
Q

Define marking to the market.

A

The adjustment between current market price and original contract price

59
Q

Upon receipt, to whom are written complaints forwarded?

A

A supervising principal

60
Q

Where do member firms keep written complaints including the original copy, the firm’s response, and other action taken?

A

At an office of supervisory jurisdiction (OSJ)

61
Q

For the exam, name the three market holidays that could impact a trade’s settlement date.

A

January 1, July 4, and December 25

62
Q

True or False: An ACATS transfer may be cancelled by the client.

A

True, provided a written request is made by the client.

63
Q

What would cause a potential sell-out?

A

A buying BD failing to accept delivery of securities on the settlement date

64
Q

What are three different methods of handling customer assets?

A

Holding in street name, transfer and hold, and transfer and ship

65
Q

For accrued interest purposes, how are days computed for corporate bonds?

A

Every month has 30 days and the year consists of 360 days.

66
Q

If validating a transfer, what restrictions does the carrying firm place on the account?

A

The account is frozen, open orders are cancelled, and no new orders are accepted.

67
Q

True or False: When the transfer and ship method of handling client assets is used, a fee may be charged.

A

True

68
Q

Client positions must be segregated from ______ positions.

A

Client positions must be segregated from firm positions.

69
Q

A written customer complaint is retained for _____ years from the date of its resolution.

A

A written customer complaint is retained for four years from the date of its resolution.

70
Q

What must be noted by a client to prevent her buy limit and sell stop orders from being reduced on the ex-dividend date?

A

Do Not Reduce (DNR)

71
Q

The ex-dividend date occurs ___ business day(s) ______ the record date.

A

The ex-dividend date occurs one business day before the record date.

72
Q

With FINRA approval, for how long may delivery of Direct Participation Program interests be delayed?

A

For up to 35 days

73
Q

When executing a COD order, who receives the confirmation of the transaction?

A

The client (unless otherwise instructed)

74
Q

True or False: In a DVP transaction, payment is made by a client when the securities are delivered and accepted.

A

True

75
Q

True or False: Any type of client may use receipt versus payment (RVP) when selling securities to a BD.

A

True. However, RVP trades are most commonly used by institutional clients.

76
Q

Assuming regular-way settlement, if a trade occurs on or after the ex-dividend date, the _______ receives the dividend.

A

Assuming regular-way settlement, if a trade occurs on or after the ex-dividend date, the seller receives the dividend.

77
Q

If a clearing member receives a complaint from a customer of an introducing broker, what procedure must be followed?

A

The complaint is sent to the introducing Broker, the firm’s SRO, with a notification to the client describing these actions.

78
Q

To have a prime broker relationship, what amount of equity must a customer maintain?

A

$500,000 ($100,000 for an investment advisor)

79
Q

What may a carrying firm do when transfers arise as a result of RRs switching firms and taking clients?

A

Attempt to convince the clients to stay

80
Q

What method of handling assets registers shares in a client’s name and delivers them to the client in certificate form?

A

Transfer and ship

81
Q

For reclamation purposes, whose responsibility is it to resolve the problem?

A

The delivering dealer must promptly deliver securities in good deliverable form.

82
Q

True or False: An introducing BD is obligated to provide its clients with the detailed terms of its clearing agreement.

A

False. An introducing firm is only obligated to disclose the existence of an agreement.

83
Q

The minimum equity for an investment adviser utilizing a prime-brokerage relationship is $_________.

A

The minimum equity for an investment adviser utilizing a prime-brokerage relationship is $100,000.

84
Q

A buy-in due to a short security difference must be completed no later than ____ days from discovery.

A

A buy-in due to a short security difference must be completed no later than 45 days from discovery.

85
Q

If non-transferable assets are being sold at the time of transfer, who discloses any surrender charges to the client?

A

The carrying (former) BD

86
Q

Account statements must be sent to customers at least ____________.

A

Account statements must be sent to customers at least quarterly.

87
Q

To avoid a close-out, a selling client must deliver the securities to the BD within how many days from settlement?

A

10 business days

88
Q

True or False: The issuing corporation determines the declaration, payment, record, and ex-dividend dates.

A

False. Exchange rules determine the ex-dividend date based on the corporation’s determination of the record date.

89
Q

By what date must a buyer own stock to be entitled to a dividend or stock split?

A

The record date

90
Q

With written instructions from a client, for how long may customer mail be held by a member firm?

A

Up to 60 days (2 months) for domestic travel and 90 days (3 months) for international travel

91
Q

List some acceptable reasons for protesting an account transfer.

A

The account is flat with no assets, invalid signature or account number, additional documentation required, no SS number

92
Q

True or False: A client of a BD may be subject to a close-out for failing to deliver securities that have been sold.

A

True

93
Q

If a discrepancy claim arises after the transfer, the carrying firm must resolve it within _____ business days.

A

If a discrepancy claim arises after the transfer, the carrying firm must resolve it within five business days.

94
Q

True or False: A valid reason to reject an ACATS transfer includes the fact that the account is the firm’s largest.

A

False

95
Q

_______________ following the trade date is settlement for trades of U.S. Government securities or option contracts.

A

1 business day (T+1) following the trade date is settlement for trades of U.S. Government securities or option contracts

96
Q

According to FINRA rules, written customer complaints must be maintained for ____ years.

A

According to FINRA rules, written customer complaints must be maintained for four years.

97
Q

When a company executes a stock split, when is the ex-split date?

A

The day after the payable date

98
Q

When is settlement for a transaction using a seller’s option settlement?

A

On a date that is agreed on by both parties, but not earlier than three business days after the trade date

99
Q

True or False: When-issued trades are marked to the market.

A

True

100
Q

A BD may allow a selling client up to ____ business days from ___________ to deliver the securities before closing out.

A

A BD may allow a selling client up to 10 business days from settlement to deliver the securities before closing out.

101
Q

Mary sells ABC stock and delivers the shares prior to the due date. When is the trade completed?

A

When the BD makes payment into the client’s account (usually the settlement date)

102
Q

What services does the Depository Trust and Clearing Corporation (DTCC) provide to its members?

A

Clearing, settlement, and information services

103
Q

A DVP transaction must be completed within ____ calendar days.

A

A DVP transaction must be completed within 35 calendar days.

104
Q

True or False: For clients whose assets are in street name, proxy materials must be forwarded to the client.

A

True, provided the distributing corporation pays for the mailing expenses.

105
Q

True or False: On a stock’s ex-dividend date, certain types of orders are reduced.

A

True. Both buy limit and sell stop orders for the stock are reduced.

106
Q

What is a BD required to obtain before accepting a customer’s DVP order to buy?

A

The name of the customer’s agent (bank)

107
Q

A client buys XNX stock and pays prior to the due date. When is the trade completed?

A

When the firm delivers the security into the client’s account (usually the settlement date)

108
Q

When are DK notices used?

A

When a trade comparison is received by one firm, but there is no corresponding trade

109
Q

True or False: Disputes over money balances/security positions are an acceptable reason to dispute the transfer.

A

False

110
Q

For purchases, when is trade completion if the client makes payment prior to the due date?

A

When the BD delivers the security into the client’s account (usually settlement date)

111
Q

When making delivery of certificates, what denominations are acceptable?

A

Physical certificates must be in multiples of 100 shares or in units that easily convert into 100 shares.

112
Q

The ex-dividend date is ___ business days prior to the record date.

A

The ex-dividend date is one business day prior to the record date.

113
Q

When are trade comparisons sent to the contra-broker?

A

No later than the trade date + 1

114
Q

If a deliverable security is not delivered through an ACATS transfer, how is it treated?

A

As a fail-to-deliver

115
Q

Notice of a buy-in may not be delivered to the seller sooner than ____ business day after settlement.

A

Notice of a buy-in may not be delivered to the seller sooner than 1 business day after settlement.

116
Q

Option positions due to expire in the next ______ business days will not be transferred with the rest of the account.

A

Option positions due to expire in the next seven business days will not be transferred with the rest of the account.

117
Q

Delivery vs. Payment (DVP) requires payment to be made no more than ____ calendar days from the transaction.

A

Delivery vs. Payment (DVP) requires payment to be made no more than 35 calendar days from the transaction.

118
Q

Tony sells ABC stock and the stock is currently in the BD’s possession. When is the trade completed?

A

When the BD transfers the stock from the client’s account

119
Q

If a written complaint is received from a customer, what must be kept in the firm’s complaint file?

A

The original complaint, the firm’s response, as well as any action taken

120
Q

A buy-in may not be initiated by the buyer until ______ business days following the settlement date.

A

A buy-in may not be initiated by the buyer until three business days following the settlement date.

121
Q

What details are covered by a clearing agreement?

A

Opening/approval of accounts, sending confirmation/statements, and receipt/delivery of funds and securities

122
Q

True or False: An account transfer may be rejected due to an invalid Social Security number.

A

True

123
Q

True or False: For a DVP transaction, the client’s agent (bank) must be informed of the transaction details.

A

True

124
Q

In a transaction, when is the prime broker identified to the clearing corporation (DTC)?

A

No later than 90 minutes from the time of the transaction

125
Q

If a stock is sold before the ex-dividend date, but not delivered by the record date, what must be attached?

A

A due bill

126
Q

Assuming regular-way settlement, if a trade occurs before the ex-dividend date, the _______ receives the dividend.

A

Assuming regular-way settlement, if a trade occurs before the ex-dividend date, the buyer receives the dividend.

127
Q

Explain the transfer and ship method of handling customer assets.

A

The shares are registered in the client’s name and delivered to the client in certificate form

128
Q

What types of bonds are considered to trade flat (without accrued interest)?

A

Zero-coupon bonds and income bonds

129
Q

If a client’s account contains non-transferable assets, what two choices is she offered as an alternative to transfer?

A

Liquidation (with payment made within five business days) or retaining the assets with the carrying BD

130
Q

For purchases, when is a trade completed if the buyer pays through a bookkeeping entry?

A

When the BD makes the bookkeeping entry

131
Q

By what date must a clearing firm provide a list of available reports to the introducing broker (IB)?

A

No later than July 1st of each year

132
Q

True or False: An introducing BD must provide clients with written notification regarding its clearing agreement.

A

True

133
Q

For a buyer to be eligible for a stock’s cash dividend, the purchase must be made prior to the ______________ date.

A

For a buyer to be eligible for a stock’s cash dividend, the purchase must be made prior to the ex-dividend date.

134
Q

What type of transaction is being executed when a client purchases securities with payment made by a third party?

A

Delivery versus payment (DVP) or collect on delivery (COD)

135
Q

Based on written instructions, a B/D may hold customer correspondence for _____ months.

A

Based on written instructions, a B/D may hold customer correspondence for three months.

136
Q

For sales, when is a trade completed if the security is in the BD’s possession at the time of sale?

A

When the BD transfers the security from the client’s account

137
Q

For active accounts, account statements must be sent ____________.

A

For active accounts, account statements must be sent monthly.

138
Q

If the buyer rejects the delivery of securities, how soon may the selling firm sell out the position?

A

At any time following rejection, the seller may sell out without prior notice.

139
Q

When must a BD buy in the securities if a selling client fails to deliver securities?

A

No later than 10 business days from settlement of the transaction

140
Q

Who determines settlement on a when issued transaction?

A

FINRA’s Uniform Practice Code Committee

Series 24 Group Share (42 decks)

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