Unit 2-General Supervision

Question 1

When is New Account Form Needed?

Answer 1

By settlement of first trade

Question 2

New Account Info

Answer 2

• Name and address
• Occupation and name and address of employer
• DOB
• SSN or Tax ID
• Is customer affiliated?
• Citizenship
• Signature of rep and principal
• Discretion, Hypothecation, Release of Info to 3rd Party (if applicable)

NOTE: A SSN is not needed so long as client can prove one has been applied for

Question 3

Info Needed for Recommendations

Answer 3

• Income, Net Worth, Tax Status
• Number of dependents
• Investment Objectives/Risk Tolerance
• Other holdings

Question 4

Quantitative Suitability

Answer 4

• A recommendation must be assessed as it pertains to the client’s overall portfolio
• While there is no set metric, high turnover and or excessive trading may indicate a violation

Question 5

Who approves new accounts?

Answer 5

53, 9/10, or 24

Question 6

Institutional Accounts

Answer 6

• Bank, S&L, Insurance Co, or Mutual Fund Co
• IA registered under Act of ‘40 or state admin
• Any person or entity with 50+ million in total assets

Question 7

What info is not needed from an institutional account?

Answer 7

-Tax Status

NOTE: Suitability is still needed if recommendations are to be made

Question 8

Control Relationship Disclosure

Answer 8

Control relationships should be disclosed to clients before recommending the purchase/sale of effected securities. If not made at this time, it must be disclosed in writing by settlement (usually on confirm)
-Discretionary trades of control securities can only be made if the client specifically authorizes it

Question 9

Not Held

Answer 9

An order (that is not discretionary) in which the client allows BD to determine time order is placed

Question 10

Discretionary Approval and Supervision

Answer 10

• S53 or 9/10 prior to first trade
• Discretionary order tickets must be principal approved promptly after execution
• Regular discretionary account review should be conducted to review potential churning/unsuitable trades

Question 11

JWROS Basics

Answer 11

• Checks must be made out to, and endorsed by all parties

- Good delivery requires all securities to be endorsed by all parties prior to sale

Question 12

Multiple Accounts (guaranteed)

Answer 12

Multiple account registrations for one client.

• Client must attest that no other person has an interest in the accounts
• May be consolidated for margin purposes (guaranteed accounts)

Question 13

Partnership Accounts

Answer 13

A UA with two or more individuals

-Partnership agreement must be on file with the firm and annual amendments should be obtained by the firm

Question 14

Corporate Accounts

Answer 14

BD must have Corporate Resolution or other documentation stating who has trading authority on the account(s)

Question 15

Margin in Partnerships or Corp Accounts

Answer 15

Only allowed if expressly stated in partnership agreement or Corp resolution

Question 16

Accounts for Muni Employees

Answer 16

Before opening:

• Firm must contact employer in writing notifying them of the account opening
• Follow any instructions given by employer
• Send dupe confirms (any any other statements if required)

NOTE: Rule applies to spouse and minor children
NOTE 2: A muni rep does not have to ask about affiliation at the time of application However, if the rep knows client is employed by another firm, he must follow rules

Question 17

Fiduciary Accounts

Answer 17

Account in which a 3rd party acts on behalf of the actual account owner

• Executors, guardians, trustees, conservators, and receivers (bankruptcies)
• Fiduciaries cannot give discretion to another party. All trades must be made by fiduciary
• Depending on state, may be limited to prudent man rule or legal list (investment grade debt)

Question 18

Margin in Trusts

Answer 18

Only if specified in trust docs

Question 19

Guardian Paperwork Requirement

Answer 19

BD must have a current (60 day) court order of appointment.

-Firm must refuse to open account if more than 60 days old until new copy is obtained

Question 20

UTMA/UGMA Rules

Answer 20

• If donor and custodian are same person, they cannot charge a fee
• Name and SSN of custodian and minor are needed
• A successor custodian can be named
• Accounts should be titled as “Robert Smith as custodian for James Smith”
• Securities in the account are registered with the custodian but are legally owned by the minor

Question 21

Other UGMA/UTMA Rules

Answer 21

• Gifts are irrevocable
• No margin or securities lending allowed
• Money withdrawn must be for minors benefit or for legitimate reimbursement of expenses
• Withdrawals must be documented for use
• Cash must be reinvested in reasonable time
• Minor can sue custodian for malpractice
• If minor dies, account goes to minor’s estate
• Minor is technically responsible for tax liabilities

Question 22

Investment Advisory Accounts

Answer 22

• Can be individual accounts or omnibus
• If omnibus, advisor must attest that the funds belong to customers and not advisor
• Confirms and Statements are sent to client and advisor
• If the advisor is with an introducing BD, the clearing firm is responsible for sending statements and confirms

Question 23

DVP

Answer 23

An account in which the payment and delivery is made at an agent bank

• Common for large institutions that hold their assets at a bank as opposed to BD
• For a BD to allow a DVP account, it must have name and address of bank as well as the customer account number
• Order ticket must be marked DVP/RVP

NOTE: Once a DVP agreement is on file, a BD is not required to contact the agent bank prior to a DVP trade

Question 24

When do DVP confirms go out?

Answer 24

Day of execution

Question 25

When is settlement for DVP trades

Answer 25

Regular way (T+2)

NOTE: If there is a logistical problem with the trade (not inability to pay), member has 35 days from trade date to receive payment.