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STC Series 27 > Progress tests > Flashcards

Progress tests Flashcards

1
Q

When do customer confirmations need to be sent

A

Must be given or sent before the completion of the transaction

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2
Q

Items that have to be included on a confirmation

A

Identity and price of security
Execution details (security/price/quantity)
date of transaction, time of execution
Capacity of the BD (Agent/Principal and for whom)
Firm capacity and compensation
agent - disclose commission
principal - disclose markup/markdown for listed securities and riskless principal trades
Debt securities: dollar price and yield
Callable debt: type of call, call date, call price
if callable then yield
Settlement date
Commissions and mark-ups
If it is a payment order flow
Control relationships with issuer (notify prior to execution)
Name of contraparty

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3
Q

If a customer requests additional information for the confirmation how long does BD have to respond

A

5 business days

If the transaction occurred more than 30 days prior to the request, then 15 business days

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4
Q

What must be on an Order ticket (order memorandum)

A

Whether long or short
Account number/Name
Account type (cash vs margin)
Security name
T&C’s (suitability)
Discretionary order (discretion not exercised checked) for customer consent
Solicited/Unsolicited
Cancel trade (CXL)
Special instructions

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5
Q

What is Affirmative determination for a short sale

A

Prior to entering a short sale, firms are required to make affirmative determination of the availability of stock to be borrowed to cover short sale by their customers when their trades do not qualify for a locate exemption

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6
Q

Regulation T - Marginable securities

A

Exchange listed securities
Nasdaq securities
LEAPS
Mutual funds (after 30 days)
Open end investment company and unit investment trust securities

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7
Q

Regulation T - what is not marginable

A

OTC’s not included on a public exchange
Shares of an IPO (under 30 days)
Mutual funds (under 30 days)
US treasury and municipal securities

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8
Q

The customers of a broker-dealer have borrowed a total of $400,000 in their margin accounts. The customers’ margin securities are worth $1,000,000. Using customer stock as collateral, how much may the broker-dealer borrow from banks?

A

The broker-dealer cannot accept a loan of greater than the customers’ total indebtedness, which is $400,000 in this question.

This question did not ask about the amount that can be rehypothecated.

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9
Q

In her margin account, a customer purchased 2,000 shares of ABC at $40 per share and made the required 50% deposit on the purchase. After the purchase, the stock advanced and closed at $50 per share. On the next day, if the stock returned to its original value of $40 per share, what’s the SMA?

A

$10,000

the SMA balance doesn’t decrease due to a decrease in the market value of the securities. In this way, SMA is considered to preserve borrowing power

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10
Q

“Fees earned acting as agent” is also known as what name

A

“Commissions”

Income account

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11
Q

What are the responsibilities of the wire room (order room)

A

For routing the order to the proper market for execution
Reporting a trade execution to the RR who entered the order
Reporting trade info to the purchase and sales department

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12
Q

What are the responsibilities of the Purchase and Sales department

A

Preparing a written confirmation of the transaction and send to the customer
Compare trade information with the contra-broker to ensure both parties agree to the terms of the transaction

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13
Q

In what order is a transaction processed by departments

A

RR order ticket&raquo_space;
Order room (wire room)&raquo_space;
Purchase and Sales&raquo_space;
Margin Department&raquo_space;
Cashier (cage)

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14
Q

What does the margin department do

A

Determines the amount of money or securities for each transaction due or from the customer.

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15
Q

What does the cashier (cage) do

A

Responsible for receiving and delivering securities and monies

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16
Q

A customer has several accounts with a broker-dealer. She has some long-term growth investments in her cash account, some mutual funds in her IRA, and has set aside $40,000 for more speculative investing in a margin account. She has decided to make DEF common stock, which is currently trading at $40 per share, her first margin investment. With the Regulation T requirement at 50%, how many shares can she purchase on margin with the funds that she has set aside?

A

2,000

Cash deposit 40,000 / 50% = 80,000 securities

80,000/40 = 2,000

LMV 80,000 - DR $40,000 = EQ $40,000

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17
Q

A customer purchases 200 shares of stock at $70 per share in a margin account and deposits the required Reg T call. If the stock begins to decline, below what price will the customer receive a maintenance call?

A

DR 7,000 x 4/3 = 9,333.33 / 200 shares = 46.67

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18
Q

What type of account is “Mutual fund concessions”

A

Income account

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19
Q

When is a pattern day trader’s buying power restricted

A

When a margin call is outstanding the buying power is restricted to two times the maintenance margin excess

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20
Q

What terms are generally associated with a market maker

A

Liquidity
Risk
Principal

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21
Q

What are the characteristics and NC of a prime broker

A

1,500,000

BD that clears and carries customer accounts for other firms on a fully disclosed basis or through omnibus accounts

Maintains accounts for institutional customers in which several executing brokers execute trades for such clients.

Sends out confirmations and consolidates information into a single statement

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22
Q

What is a K(2)i exemption and NC

A

Carries but does not hold customer funds

handles customer transactions through a special account. NC = 100,000

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23
Q

What is a K(2)ii exemption and NC

A

Clears their trades through another firm on a fully disclosed basis

NC 5,000

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24
Q

The customers of a broker-dealer have securities in their cash accounts totaling $3,300,000 and securities in their margin accounts totaling $4,500,000. Total customer margin account debit balances equal $2,100,000. The broker-dealer must have securities in its possession or control worth:

A

4,860,000

2,100,000 * 140% = 2,940,000

3.3Mil + 4.5Mil - 2.94Mil

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25
Q

What trial balance item is free credit balances and other credit balances in customers security accounts

A

CR Customer credit balances

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26
Q

What trial balance item is monies borrowed collateralized by securities carried for the accounts of customers

A

CR Bank Loan payable - secured by customer securities

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27
Q

What trial balance item is Credit balances in firm accounts which are attributable to principal sales to customers

A

CR Firm trading account, common stock, short, sold to customers

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28
Q

What trial balance item is Market value of short security count differences over 30 days

A

CR Short security differences over 30 days old

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29
Q

What trial balance account is Debit balances in customer cash and margin accounts excluding unsecured accounts and accounts doubtful of collection

A

DR Customer debit balances - secured

30
Q

What trial balance is Securities borrowed to execute short sales by customers and securities borrowed to make delivery on customers’ securities fail to deliver

A

Securities borrowed - customer

31
Q

Written notification that the cash and/or securities in the Special Reserve Bank Account are for the exclusive benefit of customers and may not be subject to any charge, lien, or claim of any kind is provided by:

A

The bank and given to the broker-dealer

32
Q

A customer’s margin account shows a $3,000 deficit for which the broker-dealer immediately issued a maintenance margin call. When must the deficit be deducted from net capital?

A

Five business days after the call was issued, if it’s not met

If the call has been outstanding for five business days or less, the amount that must be deducted from net capital is reduced by the amount of the call. Once the call has been outstanding for more than five business days, the full amount of the deficit must be deducted.

33
Q

How to calculate undue concentration on tentative NC

A

10% of tentative net capital

25% of any amounts over the above after de minimus has been taken from the principal amount:

Equity securities: Greater of 10k or MV of 500 shares
Debt securities: 25k

34
Q

In the debt-equity requirement of SEC Rule 15c3-3, a broker-dealer’s debt-equity total is equal to its:

A

Net worth plus satisfactory subordinated liabilities

35
Q

For a subordinated liability to be satisfactory and therefore added to NC, it must meet these conditions (4)

A

In writing, for a specific amount, will be used for BD business and is subject to business risk

Lender must agree to subordinate its claim to all other creditors

Minimum 1 year term (no prepayments within 1st year)

Must be filed with SEC at least 10 days prior to effective date and with FINRA at least 30 days prior to effective date

36
Q

How often is notice of free credit balances needed to customers and what disclosures are included

A

At minimum quarterly. Must be included every time a customer statement is sent

Funds are payable on demand of customer

Funds are not segregated and may be used by the BD

37
Q

Threshold security rules under SHO

A

Equity security which has a fail to deliver for 5 consecutive business days

Totaling 10,000 shares or more AND
equal to at least .5% of the issuer’s total outstanding shares

Mandatory buyout for any fail to delivers in a threshold security for 13 consecutive settlement days (morning of 14th day)

38
Q

When must the customer receive confirmation

A

“By the completion of the transaction”

Generally regarded as settlement date

When the customer makes payment or when securities are transferred.

If the customer delivers the funds early then it would be at that date

39
Q

What does a stock record show

A

Debits = credits
Long side:
Ownership of the security (customer/other brokers/firm
Securities owed to other brokers because firm borrowed
Fail to deliver to other brokers

Short side:

Location of the securities
Held for the delivery to others (in box or vault)
Securities in transit
Hypothecated securities
securities loaned
Fail to receive

40
Q

If the numbers don’t equal (long and short) on a stock record what is it called

A

Stock record break

41
Q

According to FINRA’s Uniform Practice Code, a sell-out can occur no sooner than:

A

Immediately following the settlement date

42
Q

What is a buy-in

A

The action taken by a buying broker when the seller has not made proper delivery

(fail to deliver)

43
Q

What is a sell-out

A

The action taken by a selling broker when the buyer has refused to accept delivery

(fail to receive)

44
Q

When can a buy-in be executed

A

No sooner than the 3rd business day following settlement date.

Buyer sends notice no later than 12pm, 2 business days before the proposed buy-in

If seller declares shares are in transit, buyer must defer for7 calendar days

45
Q

When can a sell-out be executed

A

fail to receive

Seller - Immediately without notice

46
Q

RR’s must notify employers of outside activities such as

A

Generally, any business activities outside the scope of their normal relationship with the firm.

Charitable work does not fall under these provisions

47
Q

Which applies to a markup or markdown - ask or bid

A

Markup - Difference between the interdealer ask and sales price

Markdown - difference between the interdealer bid and purchase

48
Q

When is the recommended markup appropriate

A

When the market is active and competitive

(not dominated and controlled)

49
Q

If a market is not active and competitive, what is the best price used for markups

A

The contemporaneous cost which is the price paid to other dealers at approx. the same time

50
Q

What services are BD’s allowed to charge for

A

Collection of dividends, safekeeping of securities.

Exchange or transfer of securities to another BD

Must be reasonable and cannot unfairly discriminate among customers

51
Q

When must a affirmative declaration or statement be obtained (4)

A

Prior to selling a new issue to an account to confirm the account is eligible under new issue rule

When confirming institutional suitability - that they are exercising independent judgement

Prior to entering a short sale - of the availability of stock borrowed when the trades do not qualify for locate exemption

When computing the quantity of securities that are in possession and control

Oral statements are not allowed

52
Q

When does a Due bill occur

A

When a dividend is due to the buyer, but is paid to the seller because delivery was not made in time to change the issuer records

53
Q

A BD required to make an inquiry to SIC with respect to every securities that come into its possession unless (5)

A

It’s received from the issuer or issuer agent

Its received from another reporting institution or federal reserve bank

Is registered in the name of the customer

Was previously sold to the customer by the firm

Is received as part of a transaction which has an aggregate face value or market value of 10k or less

54
Q

When do securities need to be verified through SIC (4)

A

When they are from a new customer

Stock delivered by a customer in street name

Stock delivered by a non-customer

Bearer bonds over 10k

55
Q

Margin and cash payments must be made in how many days

A

S+2

56
Q

If margin payment is not made in S+2 what are next steps

A

BD can request an Reg T extension and must freeze account for 90 days.

If no extension, the BD is required to sell out the position on the 3rd business day.

Customer cannot use proceeds of sell out to meet the Reg T requirement. (free riding)

57
Q

Pattern Day Trader executes how many trades

A

Executes 4 or more day trades within a 5 day period

Watch for 7 trades over 2 days

58
Q

What do BD’s that promote day trading have to do

A

They must provide a special risk disclosure document prior to account opening

59
Q

What is a limit order

A

The order may be executed only at the limit price or better

Buy order: better is the price that’s lower than the limit price

Sell Order: better is the price that’s higher than the limit price

60
Q

To open a margin account, the minimum initial equity requirement is:

A

$2,000 but not more than 100% of the purchase price

61
Q

The Special Reserve Bank Account for Customers is accounted for as what account type on the trial balance:

A

Asset

62
Q

Calls go in the money when

A

the market value rises above the strike price

63
Q

Calls go out of the money when

A

the market price falls below the strike price

64
Q

For a dealer that has a significant long position, market risk can best be described as the possibility that:

A

A dealer’s inventory may depreciate as supply and demand changes the general level of price in the market

65
Q

What is a proceeds transaction and how should a BD treat the markup

A

Proceeds transaction is when a customer directs a firm to sell a security and use the proceeds to buy another security.

The markup should be computed by using the total compensation as the percentage of the purchase price, not treat it as two separate transactions.

66
Q

What types of money laundering are generally used (3)

A

Placement: placing illegal cash into the flow of business, such as purchase of shares
Layering: (also structuring) execute transactions in several layers to avoid detection
Integration: putting proceeds back into the stream of commerce, making them appear legitimate

67
Q

What are the types of arbitration and how many arbitrators for each

A

Simplified customer arbitration (50k or less): 1 public arbitrator

Simplified industry arbitration (50k or less): 1 non-public arbitrator

Regular arbitration member to member (100k or more): 3 non-public

Regular arbitration customer to member (100k or more): 1 non-public, 2 public (customer can choose 3 public)

68
Q

Member firms may not sell a security for their own account or purchase a security as broker for customers if the member firm has a domestic (USA and Canada) fail to deliver that’s how many days old

A

60 days or older

69
Q

Member firms may not sell a security for their own account or purchase a security as broker for customers if the member firm has a foreign (NOT USA and Canada) fail to deliver that’s how many days old

A

90 days or older

70
Q

Stock power is also known as and is used for

A

Power of substitution

Transfer of ownership

STC Series 27 (3 decks)

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