FC Chapter 16 Flashcards
What is the net capital requirement for an executing broker in a prime broker relationship?
1,000,000`
FINRA must be notified ____ days prior to the effective date of a satisfactory subordinated loan.
FINRA must be notified 30 days prior to the effective date of a satisfactory subordinated loan.
A subordinated loan may be included in a BD’s equity capital if the loan has an initial term of ______ years.
A subordinated loan may be included in a BD’s equity capital if the loan has a minimum life of 3 years. and a remaining term of at least 1 year
Who is NOT considered a customer of a BD?
Other BDs, officers, directors, general partners, or subordinated lenders of a BD
When retaining a new accounting firm, a BD must notify the SEC within _______________ days.
When retaining a new accounting firm, a BD must notify the SEC within 15 business days.
For underwriting purposes, a BD is allowed up to _______ temporary subordinated loans over ____ months.
For underwriting purposes, a BD is allowed up to three temporary subordinated loans over 12 months.
When is FOCUS Report Part II (for carrying BDs) and FOCUS Report Part IIA (for introducing BDs) required to be filed?
Within 17 business days of the end of the quarter
A temporary subordinated loan for underwriting purposes carries a maximum maturity of ____ days.
A temporary subordinated loan for underwriting purposes carries a maximum maturity of 45 days.
Excess margin securities are those whose value exceeds _____% of the customer’s debit balance.
Excess margin securities are those whose value exceeds 140% of the customer’s debit balance.
Within what period must any required adjustment be made to a firm’s fidelity bond?
Within 60 days of the anniversary of posting the bond
If making a market in securities priced at or below $5, the capital requirement per issue is $______.
If making a market in securities priced at or below $5, the capital requirement per issue is $1,000.
If a securities count is done by a person responsible for care and handling of securities, who supervises the count?
A person who is NOT responsible for the care and handling of securities
Identify two situations that may indicate a firm is experiencing operational difficulty.
Failure to maintain books and records on a timely basis or the inability to clear and settle its transactions promptly
A subordinated loan which may be included in the BD’s net capital computation is a ___________________________.
A subordinated loan which may be included in the BD’s net capital computation is a Satisfactory Subordinated Loan.
True or False: Both the semiannual and annual report must be audited.
False. Only the annual report is required to be audited.
Upon making changes to its fidelity bond, the BD must notify its DEA ________.
Upon making changes to its fidelity bond, the BD must notify its DEA promptly.
A net capital adjustment is required for short securities differences remaining unresolved after _______ business days.
A net capital adjustment is required for short securities differences remaining unresolved after seven business days.
What events will cause a BD’s net capital requirement to change?
A change in the complexity of business activities (non-carrying to carrying or carrying to prime broker) or change in AI
What is the net capital requirement for a BD who maintains client accounts, but does not hold client cash/securities?
100,000
A BD posts a __________ bond to cover the costs of fraud or securities lost in transit or transfer.
A BD posts a fidelity bond to cover the costs of fraud or securities lost in transit or transfer.
Define satisfactory subordinated loan.
A loan made to a BD whereby the lender agrees to subordinate its claim to all other claims on the BD
To begin using a form of electronic storage (other than CD-ROM), the BD’s DEA requires a ___-days advance notice.
To begin using a form of electronic storage (other than CD-ROM), the BD’s DEA requires a 90-days advance notice.
If a BD receives bearer bonds from an unknown source, what should the firm do?
Make an inquiry of the Securities Information Center
A carrying BD must file FOCUS Report Part I within _____ business days of month-end.
A carrying BD must file FOCUS Report Part I within 10 business days of month-end.
What is the net capital requirement for a BD that does not receive or hold customer funds or securities?
5,000
All documents are to be maintained readily accessible for the first ___ years.
All documents are to be maintained readily accessible for the first 2 years.
What items are shown on a securities ledger?
For each security, the ledger shows its physical location and the account that owns it.
What items are included in a BD’s aggregate indebtedness?
Funds payable to customers on demand, accounts payable, taxes payable
A transfer agent, the Securities Information Center (SIC), and FBI are notified together for what probable reason?
Stolen or counterfeit securities have been discovered.
From whom may a firm acquire securities and not be required to inquire of the SIC?
From the issuer or its agent, another BD, the FRB, or an existing client (if registered in her name)
True or False: Customer cash is included in a firm’s aggregate indebtedness.
True
Customer ledgers (account records) are maintained for ____ years.
Customer ledgers (account records) are maintained for six years.
If a BD’s equity is below ____% of its debt-equity total, a violation will occur if not corrected within ____ days.
If a BD’s equity is below 30% of its debt-equity total, a violation will occur if not corrected within 90 days.
The minimum net capital requirement for a market maker is $_________.
The minimum net capital requirement for a market maker is $100,000 (amount is based on the number of issues involved).
List some records that must be maintained for three years.
Trade tickets, confirms, trial balances, retail communication, correspondence, and employee records
Customer confirmations and statements are maintained for ______ years.
Customer confirmations and statements are maintained for three years.
To be considered a ready market stock, it must have at least how many market makers?
three
How often must a physical count of all securities in the firm be conducted?
Inventory counts must be conducted every quarter.
Free credit balance notices must disclose if funds are NOT ___________ and may be used in conducting the BD’s business.
Free credit balance notices must disclose if funds are NOT segregated and may be used in conducting the BD’s business.
When computing net capital, why are some assets carried at no value (deducted in full)?
Because some assets are extremely illiquid, such as fixed assets, pre-paid memberships, and intangibles.
To be assured that a withdrawal from the reserve account is allowed, what step must the BD take?
Compute the account’s required balance to be assured of an excess
A ____% reduction in excess net capital in the preceding three months is a sign of financial difficulty.
A 30% reduction in excess net capital in the preceding three months is a sign of financial difficulty.
Under the Customer Protection Rule, which securities must be segregated from all other BD assets?
All fully-paid and excess margin securities belong to customers
BDs are required to monitor the status of all fully paid and excess margin securities on a _______ basis.
BDs are required to monitor the status of all fully paid and excess margin securities on a daily basis.
True or False: A BD’s Special Reserve Account may include speculative equities of both domestic and foreign companies.
False. The account contains only cash and qualifying U.S. government securities.
Limited market securities are subject to a haircut of ____.
Limited market securities are subject to a haircut of 40%.
Firm-commitment underwriters and dealers must satisfy a minimum net capital requirement of $_________.
Firm-commitment underwriters and dealers must satisfy a minimum net capital requirement of $100,000.
A BD receives stock from an existing client that is registered in his name. Is the BD required to make an SIC inquiry?
No. Since the stock was received from an existing client, no inquiry is required.
On what is a BD’s minimum fidelity bond requirement based?
Its net capital requirement
How frequently do BDs conduct physical counts of securities in their possession?
Quarterly
The SEC must be notified ____ days prior to the effective date of a satisfactory subordinated loan.
The SEC must be notified 10 days prior to the effective date of a satisfactory subordinated loan.
True or False: BDs must account for all securities in its possession as well as those in transit or transfer.
True
What types of records are maintained for the life of the BD?
Documents that create the BD, such as partnership agreements and corporate charters
What types of items may be held in the Special Reserve Account?
Only cash and securities that are guaranteed or issued by the U.S. Government
If a firm’s net capital requirement is $250,000, a net capital violation occurs if its net capital falls below $_______.
If a firm’s net capital requirement is $250,000, a net capital violation occurs if its net capital falls below $250,000.
True or False: Securities in transit between offices of a BD are still considered under the BD’s control.
True
A BD’s outstanding subordinated debt may NOT exceed ____% of its debt-equity total for a period exceeding ____ days.
A BD’s outstanding subordinated debt may NOT exceed 70% of its debt-equity total for a period exceeding 90 days.
If an auditor for a member firm finds a deficiency, when must the BD notify the regulators?
A procedural deficiency is reported within 24 hours of discovery, and a corrective action plan is sent within 48 hours.
The percentage reduction (haircut) for equity securities with a ready market is ____.
The percentage reduction (haircut) for equity securities with a ready market is 15%.
What is the net capital requirement for a Prime Broker?
$1,500,000
What limitations are placed on an introducing BD with a $5,000 minimum net capital requirement?
It must introduce client accounts to another BD and may NOT hold client funds or securities.
True or False: BDs are required to notify clients that customer free credit balances are payable on demand.
True
When computing net capital, a _________ is an inventory adjustment that must be taken on certain assets.
When computing net capital, a haircut is an inventory adjustment that must be taken on certain assets.
True or False: Satisfactory subordinated loans are covered by SIPC.
False
When are BDs required to provide clients with information regarding their free credit balances?
Whenever account statements are provided to clients (at least quarterly)
When must a BD send its audited financial statements to clients?
Within 45 days of filing with the SEC and its SRO
Other than in a BD’s vault, what else is considered a good control location?
An SEC-approved depository (domestic/foreign), at a bank (free of encumbrance), or in transit between BD offices
A loan made to a BD which will be repaid after all other obligations is known as a ___________________.
A loan made to a BD which will be repaid after all other obligations is known as a subordinated loan.
Any required deposit in a BD’s Special Reserve Bank Account must be made within ___ business days after the calculation.
Any required deposit in a BD’s Special Reserve Bank Account must be made within two business days after the calculation.
If computing a BD’s net capital, when is an undue concentration charge assessed to the firm?
When the BD has a single position in excess of 10% of its tentative net capital
What limitation is placed on an investment companies/variable contracts firm with a $5,000 net capital requirement?
It may NOT receive client funds (subscription basis only).
