Front Office Functions

Question 1

What rule governs the preparation of broker dealer books and records?

Answer 1

SEA Rule 17a-3

Question 2

What rule governs the maintenance of broker-dealer records?

Answer 2

SEA Rule 17a-4

Question 3

What record does a registered representative complete to show all information about a customer?

Answer 3

New Account Form

Question 4

What is an individual account?

Answer 4

A type of account in which only an individual has the right to trade. Upon the individual’s death, the account passes to the individual’s estate.

Question 5

What is Joint Tenant with Right of Survivorship?

Answer 5

A type of account in which each individual named on the account has the right to trade without the authorization of the other party. Upon death of any account owner, the account passes to the surviving owner without passing through probate.

Question 6

What is Joint Tenant in Common (or Tenant in Common)?

Answer 6

A type of account in which each individual in the TIC arrangement has a specified ownership interest. Trades must be approved by all members of the TIC or trading authorization must be given to one of the members. Upon death of any account owner, his/her proportional share of the account passes to his/her estate.

Question 7

How long must a firm keep records?

Answer 7

In general, a firm must keep records for three years. Certain records must be kept for six years. See SEA Rule 17a-4.

Question 8

In what form must a firm maintain records?

Answer 8

A firm must maintain records in hard copy or electronic form. If electronic, the records must be secure and in a write-once, read-many (WORM) format.

Question 9

What is a cash account?

Answer 9

In a cash account, the customer pays for each transaction with cash. The firm may not lend the customer money.

Question 10

What is a margin account?

Answer 10

In a margin account, the firm may lend the customer money to purchase securities.

Question 11

What rules govern margin accounts?

Answer 11

FINRA Rule 4210 and Regulation T.

Question 12

What is order execution?

Answer 12

Order execution refers to a firm’s fulfillment of a customer’s buy or sell order.

Question 13

Where does order execution usually happen?

Answer 13

Execution usually happens on an exchange. (But it can occur in other venues, such as an Alternative Trading System.)

Question 14

How does execution usually occur?

Answer 14

Execution usually occurs when a firm identifies a counterparty for a customer’s order and commits to trade with the counterparty. (But it can happen in other ways.)

Question 15

What is an “in-house cross?”

Answer 15

An “in-house cross” is a type of order execution in which a firm matches two customer orders.

Question 16

What is “internalization?”

Answer 16

Internalization is a type of order execution in which a firm takes the other side of a customer’s trade.

Question 17

What is a “lit” market?

Answer 17

A lit market such as an exchange posts bid and ask prices publicly, thus shedding light on supply and demand.

Question 18

What is a “dark pool?”

Answer 18

A dark pool is an alternative trading system (ATS) that does not post bid and ask prices although willing buyers and sellers are participating in the market.

Question 19

What is a 606 report?

Answer 19

Rule 606 of Regulation NMS requires broker-dealers to file a quarterly report that discloses to which market makers they routed non-directed orders in NMS stocks and NMS options contracts during the quarter.

Question 20

What is a market order?

Answer 20

A firm must fill a market order immediately upon receipt at the best available price. The price at which the order is executed may be better than, worse than, or the same as the price quoted when the customer placed the order.

Question 21

What is a limit order?

Answer 21

A firm must execute a limit order when a security’s price reaches a price specified by the customer. If the firm cannot execute the order at the limit price or better, the order is cancelled.

Question 22

What is a stop order?

Answer 22

A stop order converts to a market order when a security’s price reaches a price specified by the customer. The price at which the order is executed may be better than, worse than, or the same as the stop price.

Question 23

What is a marketable limit order?

Answer 23

A marketable limit order is a limit order that will be filled because the market price of the security is at the limit price or better.