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SIE updated > SIE 12-15 > Flashcards

SIE 12-15 Flashcards

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SIE Exam flashcards
1
Q

Market maker quotes are x, but are adjusted when trading with retail customers

A

Inter-dealer

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2
Q

FINRA established a 5% policy for Fair prices and commissions

A

Guideline not a rule for commissions, markup, and markdowns, certain transactions may be justified

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3
Q

Factors that influence markups and markdowns

A

Type of security, availability of the security, price, amount of money involved, pattern of markup, the type of client or if the firm will profit is not relevant

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4
Q

When a BD client liquidates securities and use the proceeds to buy other securities, what is the markup calculated on

A

Based as if one trace not two 10k transactions

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5
Q

What trades are excluded from the 5% policy?

A

New issues, mutual funds, variable annuities, and exempt securities

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6
Q

When discretion is granted to a RR it must be documents how?

A
  1. If the trading was made by the RR w/o consent to the specific trade, order ticket must state “discretionary” and if not, it will state “discretion not exercised’
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7
Q

For any non-discretionary accounts and order ticket must be marked as what

A

Solicited (recommended by agent and accepted by customer) or Unsolicited (trade is placed by customer )

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8
Q

Types of Order Transactions

A
  1. Purchase (trade paid in full or purchased on margin) 2. Long Sale (sale of securities that are owned by customer) 3. Short Position Created by Securities not owned by the customer or Covered and uncovered options
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9
Q

Short Sale of securities

A

Customer borrows from the firm and sells, must deposit the appropriate amount of margin, risk is on upside and is unlimited

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10
Q

Covered vs uncovered options

A

If covered - no margin is required and risk is generally limited, if uncovered margin is required and risk might be significant

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11
Q

Customer wants to buy or sell, specifies security and size and is immediately executed at best available price

A

Market Order

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12
Q

Customer only wanted to buy or sell at a set price or better. Buy are the price or lower and sell at price or higher

A

Limit Order

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13
Q

Order used to limit a loss or protect gain, either sell or buy above or below market price, once activated, becomes a market order (trigger price is once the order gets to the set number but execution price is the next price that could be above the trigger price)

A

Stop order

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14
Q

Sells stop orders will activate at stop price or lower, buy stop order will active at stop price or higher. Once executed it becomes a limit order

A

Stop Limit Order

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15
Q

what should you use to hedge a long position

A

Sell stop order

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16
Q

what can be used to hedge a short position

A

Buy stop order

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17
Q

How long are orders good for (Order Qualifiers)

A

Unless specified, orders are day orders, it not satisfied by EOD, they are not executed. Good Til Cancelled or GTC or Open orders stay on the books until it expires or is cancelled

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18
Q

What is the trading process

A
  1. Order Entry 2. Execution 3. Clearing 4. Settlement 5. Custody
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19
Q

Unless a specific exception is made, settlement will occur as follows

A
  1. Corporate and Municipal securities T+2 (regular way or normal business transactions)
  2. US Government Securities and Options are T+1 settle 3. Cash same day as trade Date 4. Sellers Options not earlier than T+2 5. When Issued as determined with NUPC
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20
Q

Regulation T Payment Date

A

According to the Fed, Reg T payment must be obtained for transaction in cash or margin accounts within two business days of settlement S+2 or T+4. Options require customers to settle T+4 as well

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21
Q

What securities are exempt from Reg T

A

Municipal and US Government

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22
Q

What provides clearing, settlement, and information services for depository eligible securities. No physical securities, all book entry

A

Depository Trust and Clearing Corp DTCC

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23
Q

Within the DTCC who does clearing and who provides custody and safe keeping sercices

A

National Securities Clearing Corp (NCSS) central counterparty for clearing, settlement and guaranteed US equity trades. Depository Trust Company CTD provides custody and safe keeping services

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24
Q

Stock transitions must be delivered in multiples of X and Bond Transactions must be in units of X

A

Stock - 100 share (round lot) Bonds -$1,000 united

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25
Q

Examples of corporate actions

A

Stock splits, rights offerings, proxies

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26
Q

Cost basis and capital events

A

Stock splits

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27
Q

What is the purpose of a stock split or stock dividend

A

Improve marketability of stock, no economic gain or loss, no change t issuers capital, no change in holder percentage of equity . more shares, lower price

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28
Q

Reverse stock split

A

fewer shares, higher price

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29
Q

Indicates the intent to buy shares from the owner at a fixed price

A

Tender offer . Shares may only be tendered if an investor is long the stock or its equivalent

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30
Q

Provides existing shareholders with the opportunity to purchases additional share from the company

A

Preemptive Rights

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31
Q

Owners who allow issuers to contact and send communications to them directly

A

Non-Objecting Beneficial Owner NOBO

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32
Q

Owners who will not release personal information t issuers, Instead all communications must be sent form the owners Broker dealer

A

Objective Beneficial Owners

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33
Q

In order for the sale of stock from a joint account to be considered good delivery, what must be signed

A

The stock power must be signed by all owners

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34
Q

Tender offers have a minimum amount of shares, if that amount or more are not tendered by investors (put up for sale) the company will not buy any shares

A

True

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35
Q

BD may charge the issuer when forwarding 10k and 10Qs to holders

A

True

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36
Q

Types of accounts customers can open in brokerage firms

A
  1. Cash account - buy full amount of trade 2. Margin account Long account (client borrows fund s from broker deal to purchase securities and short accounts - client borrows securities from broker dal to sell short 3. Option account
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37
Q

What are the pros and cons of margin accounts

A
  1. increase customer purchasing power 2. increase risk of large loss due to adverse market changes 3. subject to regulation T requirement of 50%
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38
Q

What are you required to sign when opening a margin account

A

credit agreement

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39
Q

what is required on a credit agremeent

A
  1. term of loan 2. disclose interest amount 3. can include hypothecation (pledge) agreement where customer hypothecates securities to BD as collateral
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40
Q

A non-mandatory document for opening a margin account that allows the BD to lend the customers securities to others

A

Loan Consent agreement

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41
Q

A required document that must be provided to all customers opening a margin account

A

Margin Disclosure document - states risk of account, such as the firm can force the sale of securities or assets in the account, customer can lose more money than deposited

42
Q

How do firms gather client information for Options

A

Option Account agreement - with names and financial statues (data does not need to be verified). If client doe not provide requested information a note is made on the agreement

43
Q

What is sent to clients when opening a client options account

A

A copy o f the Option Account agreement and the OCC’s option disclosure doc the ODD

44
Q

What is required for discretionary accounts

A

A signed Power of Attorney (authorization form, signed by the client and the person granted authorization. Principal must approve the account in writing prior to its opening. Each other must be reviewed and approved by a principal (not in advance) and activity must be monitored for churning

45
Q

Excessive trading for the sole purpose of getting commissions fees

A

Churning

46
Q

Limited trading vs full trading authorization

A

Limited allows for execution of trade. Full trading authorization allows for execution of trades, withdrawal of cash and securities, check writing privileges

47
Q

Allows client to provide oral authorization for trade execution, avoids need to discretionary authority and are limited to time and price. need asset, amount, and action. only last for 1 day

A

Not Held Order

48
Q

Fee based accounts

A

Traditional accounts charge on a per share transaction basis assessing a commission on each trade. Fee based accounts roll all of the costs for services into one fee (wrap accounts are a type of fee based accounts)

49
Q

Education saving plans for k-12 with max contribution of 2k annually per child up to age 18. After tax dollars are used, earnings are tax-free if used for a qualified education expenses. Funds must be used by the child’s 30th birthday

A

Coverdell education savings accounts

50
Q

A education saving plan designed for higher education

A

529 plan

51
Q

An account opened by and for one person who can dictate trades. This account may be opened under a number or code name. Customer Identification program requires firms to maintain records of the beneficial owners

A

Individual account

52
Q

Account opened for each owner, any owner may initiate activity, signatures are required all owners must sign. Checks need to be payable to all parties

A

Joint Accounts

53
Q

Joint accounts common for spouses, each tenant has equal ownership and assets pass to surviving tenants without probate

A

JTWROs

54
Q

Joint account that each tenant owns a specified amount. If one owner dies, decedent’s portion is transferred to her estate

A

JTICs

55
Q

A legal arrangement in which an individual give fiduciary control of property to a person or institution (trustee) for the benefit of beneficiaries

A

Trust account

56
Q

Trusts that the person has the ability to change or stop any terms in the trust, does not reduce estate taxes but avoids probate in donor’s death

A

Revocable

57
Q

A trust that cannot be changed after being signed. Will reduce estate taxes and avoid probate

A

Irrevocable

58
Q

AN account for minors that is a custodial account, run by states, Owner (child) is responsible for taxes and needs the minor’s SS number. One custodian (adult) per account. State determines asset distribution if minor dies. in a Minor account, child gets money at 18 and cheaper to open, trust you can pick when child gets money

A

UGMA / UTMA Uniform Gift (Trust) Minor Account

59
Q

Max gift amount for UGMA and UTAM

A

Taxes may be due from donors if gifts exceed 15k per year. No limit on number of donors or amount and cannot use margin

60
Q

Passed January 1 2020 regarding retirement accounts that increased the required minimum age to 72. Added penalty free withdrawals for birth of adoptions for IRAs or firm sponsored retirement plan of up to 5k. In 529 plans individuals can take up to 10k on a tax-free basis to repay a student loan, ad added 401k plans for part time employees

A

SECURE Act

61
Q

similarities of Traditional vs Roth IRAs

A

Both are 100% earning income up to a max of 6k (traditional as 6% fee for overfunding). Spousal option of extra 6k. Age 50 or older they can put an extra 1k.

62
Q

differences of Traditionally vs Roth IRAs

A

Traditional - contribution may be deductible, contribution is always allowed, required minimum distribution b yApril1 of the year owner reaches age 72 and withdrawals are subject to tax. Roth IRA - contribution is never deductible, higher income individuals may not contribute, o withdrawal requirement, qualifying withdrawals are tax free

63
Q

For both traditional and roth IRAs what is the early withdrawal penalty

A

Before age 59.5 and 10% taxable amount. In forth, first contribution must have been made at least 5 years prior. Exceptions - death, disability, up to 5k for birth or adoption, or qualified first time homebuyers with 10k lifetime limit

64
Q

taxation of traditional IRAs

A

if funded with after tax contribution’s, earnings are tax-deferred (you already paid tax on funding). Pre-tax would be fully taxable upon distributions

65
Q

Act created in 1974 to prevent misuse and mismanagement of pension plans. Rules apply to private sector defined benefit and defined contribution plans. Determines qualified status and plans may not discriminate and offer to all employees over the age of 21 and have 1 year of full service. An approved vesting schedule must be followed, employees are 100% vested in their own contributions

A

ERISA - employee retirement income security act of 1974

66
Q

tax status of contribtuions

A

Pre-tax contributions have a zero cost basis (tax at withdrawal) after tax contributions are part of cost basis (tax-free at withdrawal). earnings grow tax deferred.

67
Q

retirement plans never generate capital gains or losses

A

true

68
Q

tax status of distributions

A

any portion representing pre-tax is taxable as ordinary income. and portion representing after tax is return of capital and not taxed. Earning are typically taxed as ordinary income.

69
Q

Investments in a 403(b) plan are limited to what

A

Mutual finds, variable and fixed annuities. Limited partnerships are not eligible investments

70
Q

Short sales must be executed in a margin account since they involve borrowing securities. For the first short sale in a new margin account, the minimum deposit requirement is

A

2,000

71
Q

FINRA rules for opening cash accounts

A

Name of customer, address, whether or legal age, RR of record, signature of supervising principal and a copy of the above information must be provided to the clients at least every 36 months. Customers are not required to sign their new account forms. FINRA requires to ask but not necessary obtain employment status, tax ID and associated with another BD

72
Q

Recordkeeping requirements according to rule 17a-3

A

Name and TAX ID, address, phone, date of birth, employment status, associate with another BD, and information to assist in determining suitability

73
Q

FINRA rules require firms to send a copy of updates changes to a customer with in how man days

A

30 days

74
Q

what are the basics of suitability

A

Based on the client’s profile when the account is opened - applies to recommended transactions and investment strategy. It is not determined by gains and losses and RRs may not place their own interest ahead of the clients

75
Q

What are the basics of institutional suitability

A

Based on those servicing the account having a reasonable belief that the client is capable of evaluating investment risk and institutional client affirmatively stating that it is exercising independent judgement

76
Q

What are the three FINRA suitability rules

A
  1. Reasonable basis - a recommendation is suitable for at least some investors 2. Customer specific obligations suitable for a particular customer (non institutional customers only) and 3. the quantitative obligation -not excessive when the customer’s investment portfolio is taken into consideration
77
Q

USA Patriot act requires what

A

Customer Identification procedure (CIP) BDs must verify the identity of each customer within a reasonable period of the account opening

78
Q

Three stage of money laundering

A
  1. Placement (illegal cash placed into account) 2. Layering series of transactions which are meant to avoid detection3. Integration (proceeds from previous transaction are put back into the stream of commerce
79
Q

Division set up under the Bank Secrecy Act (BsA) enforced by the US treasury

A

FinCen (financial crimes enforcement network)

80
Q

Under the Bank Secrecy Act Transaction Report (BCTR) or Currencty Transaction REport filed for all cash transaction executed by a single customer in 1 business day that exceeds what amount and filed within how many days

A

$10k and filed within 15 BDs

81
Q

Under the SARs report or Suspicious activity report, is filed whenever a transaction or group of transactions exceeds what amount and the firm is suspicion and filed within how many days

A

5k and 30 business days

82
Q

Violation of AML results in what

A

20 year prison of the greater of 500k per transaction and or twice the amount of funds involved

83
Q

Requirements of AML compliance program

A
  1. appoint an AML compliance officer 2. Create written procedures 3. independent audit function to test effectiveness and 4. no requirement to file report with a regulator
84
Q

List maintained to identify the names of terrorists or criminals and identifies countries US is not permitted to do business with

A

Office of Foreign Asset Control OFAC

85
Q

Federal Trade Commissions Red Flag Rules

A

Financial institutions must cerate and implement policies and procedures to detect and address identity theft, intent is to protect clients assets. Firms are prohibited for using client information for soliciting purposes unless specifically directed to do so and is the benefit of the corporation

86
Q

Customer statements must be done how oftern

A

quarterly unless active account, then monthly. Firms must receive written customer instructions to hold customer mail and must include the time period (if three consecutive months, customer needs to include valid reason)

87
Q

when must trade confirmations be sent

A

on or before settlement of the transaction, includes name of customer, buy/sell, price quantity, trade and settlement date, firm capacity, for bonds dollar price and yield information and name of contra party

88
Q

Any written or electronic commination to 25 or fewer retail investors on any 30 calendar day. subject to review and supervision

A

Correspondence

89
Q

Any written or electronic communication for more than 25 investors within a 30 day period, often subject to preapproval and filing with FINRA

A

Retail communication

90
Q

Any written or electronic communication made to institutional investors only. require review and supervision

A

Institutional communication

91
Q

What established rules to protect the privacy of clients confidential information

A

Regulation SP

92
Q

A privacy notice must be provided to the clients when

A

Opening the account and annually after

93
Q

Telemarketing calls may be made on any date between what hours

A

8am to 9pm

94
Q

Do-not-call list

A

If requested a client must be placed on the firms do not call lit within 30 days and will remain there. Before placing a call the firm must review the FTC national do not call registry

95
Q

Broker dealers must obtain this as part of insurance coverage against loss of trading as a result of fraudulent trading, loss of securities, or forgery

A

Fidelity Bond

96
Q

Business Continuity Plans address the following

A
  1. Regulatory reporting 2. Communication with Regulators 3, Communications between firms and clients and firm and employees 4. Emergency Contact Information of two persons 5. Alt location for employees to work 6. Ensuring that the mission critical systems continue to process transitions promptly. not required to to be filed with FINRA unless requested
97
Q

Retention of books and records

A
  1. corp and partnership docs 0 life 2. Blotter records, ledgers, new account forms, municipal companies 6 years (FINRA requires compliance to be maintained for 4 years 2. Order tickets, confirms, U4s for three years
98
Q

Represents proceeds that have not been withdrawal or reinvested

A

Free credit balances

99
Q

SEC record retention rules generally require a firm to maintain records in an easily access location for how many years

A

First two years

100
Q

An institutional account includes those of banks, savings and loans, insurance companies, registered investment advisers, registered investment companies, or any person with total assets of

A

50 mil

SIE updated (6 decks)

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