UNIT 19 CHECKPOINT EXAM Flashcards
Good delivery of a stock certificate requires all of the following except
A) the correct number of shares are delivered.
B) proper endorsement by all owners.
C) certificates in good condition.
D) proper signatures of a firm principal on the certificate.
D) proper signatures of a firm principal on the certificate.
Explanation
The broker-dealer does not sign the certificate. All the rest of these are requirements.
A trade of an equity option settles in ( ) days, while an exercise of an equity option must be completed in ( ) days.
A) 2,2
B) 1,2
C) 2,1
D) 1,1
B) 1,2
Explanation
An option trade settles next business day (T+1); the exercise of an equity option settles in two days from exercise.
A signature endorsement on a stock certificate would not be required for good delivery if the shares were
A) held in street name.
B) are in custodial name.
C) in trust name.
D) held in safe keeping.
A) held in street name.
Explanation
Shares held in street name are normally registered to the broker-dealer, who hold them on behalf of the client. As these shares are likely only in electronic form no signature is required to transfer them.
Shares held in electronic form at a clearing house under a broker-dealers account are
A) held in safe keeping.
B) held in street name.
C) are in custodial name.
D) in trust name.
B) held in street name.
Explanation
Shares held in street name are normally registered to the broker-dealer, who hold them on behalf of the client at the broker-dealers clearing firm.
On Friday, July 1 your customer purchased 10 3% T-bonds maturing in 15 years. This trade will settle on
A) July 2
B) July 3
C) July 5
D) July 6
C) July 5
Explanation
Treasuries settle T+1 (next business day after the trade). A trade on Friday would normally settle on Monday, but this Monday is a holiday (Independence Day). Remember the July 4 and December 25 are not settlement days.
On Tuesday, December 10 your customer Bought 5 OEX (S&P 100 Index) 230 March calls at four. On Tuesday, March 10 the calls are in-the-money and your customer issues exercise instructions. On what days did the trade and the exercise settle?
A) December 11 and March 12
B) December 12 and March 11
C) December 12 and March 12
D) December 11 and March 11
D) December 11 and March 11
Explanation
All option trades settle next business days. The exercise of an Index option settles the next business day.
A cash settlement trade settles
A) the next day.
B) in two business days.
C) the same day as the trade.
D) the regular way, but no margin borrowing is permitted.
C) the same day as the trade.
Explanation
A cash settlement trade settles the same day as the trade. A cash trade is a trade that occurs in a cash account (meaning no margin).
Ron buys 522 shares of Narcissus Inc., common stock in a cash account on Monday, March 19. He deposits cash in the account sufficient to cover the trade on March 20. How soon would he be able to withdraw those shares?
A) Tuesday, March 20
B) Wednesday, March 21
C) Friday, March 23
D) Thursday, March 22
B) Wednesday, March 21
Explanation
This is a regular way settlement of a corporate security (T+2). The trade is fully paid for so the customer may request the shares be moved on or after settlement on Wednesday, March 21.
A document that substitutes for the owners signatures on the back of a stock or bond certificate is called a
A) stock or bond power.
B) signature substitution letter.
C) certificate power.
D) security substitution letter.
A) stock or bond power.
Explanation A stock (or bond) power signed by the owners may be used in lieu of the customer's signature on the back of the certificate.
Your customer buys 300 shares of Steel Tools common stock on Tuesday and will be an owner of record as of the close of business that same Tuesday. This must be
A) a quick settlement trade.0
B) not possible.
C) a mutual fund.
D) a cash settlement trade.
D) a cash settlement trade.
Explanation
This is called a cash settlement trade. It states that the trade is a common stock, so not a mutual fund. There is no formal quick settlement trade.
