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FINRA Series 6 > Unit 5: Opening and Servicing Customer Accounts > Flashcards

Unit 5: Opening and Servicing Customer Accounts Flashcards

1
Q

Opening Accounts

A
  • name
  • DOB
  • address
  • SS #

** signature of client not required

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2
Q

Types of Account Ownership

A
  1. individual
  2. joint
  3. corporate
  4. partnership
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3
Q

Trading Authorization - Power of Attorney

A
  • accounts may be opened with someone other than the owner having the authority to buy and sell securities
  1. Discretionary: registered representative, need principal approval
    (if there is one of these 3 things missing it is discretionary….authority to decide action - buy or sell, asset - which security and amount)
  2. Custodial: competent adult to act on behalf of child/beneficiary (UGMA, UTMA accounts one-to-one, no limit on gifts but gift tax)
  3. Fiduciary: third party legally appointed
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4
Q

Payment Methods

A
  1. margin account: borrow $

2. cash account: pay full purchase price

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5
Q

Interpositioning

A
  • results in a less favorable price to the customer as the third party will trade at inside market for themself
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6
Q

COD Orders

A

Cash on Delivery

- payment for securities purchased or delivery of securities sold is to be made by an agent bank

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7
Q

Opening Accounts for employee of another member firm

A
  • account holder must be advised in writing that his employer will be notified of this account
  • employer must receive written notification that the account is being opened
  • if employer request duplicate confirmations, they must be sent
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8
Q

Individual Account

A
  • one beneficial owner
  • only person who can control investments within the account & request distributions of cash or securities from the account
  • transfer on death: allows account holder to specify who is to receive the account on his death
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9
Q

Joint Account

A
  • two or more adults named as co-owners
  • tenants in common or joint tenants with right of survivorship
  • checks must be payable and endorsed by both parties
  • any party may make a trade
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10
Q

Private Securities Transactions (PSTs)

A

any sale of securities outside an associated person’s regular business and his employing member

  • provide written notice to employer
  • describe in detail the proposed transaction
  • describe in detail his proposed role in transaction
  • disclose if he will or may receive compensation or the transaction
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11
Q

Outside Business Activities

A

need prior written notice to receive compensation as a result of any business activity outside scope of their employer firm

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12
Q

Violations of Fair Dealing

A
  • recommending any investment unsuitable for customer’s financial situation and risk tolerance
  • short-term trading of mutual funds
  • fraudulent acts of forgery or ommission
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13
Q

Churning

A

excessive trading to generate commission

abuse of fiduciary responsibility

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14
Q

Wrap accounts

A
  • account that holds all of a customer’s assets and is managed for a flat fee or percentage of the assets being managed
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15
Q

5 Types of Lending arrangements permitted

A
  1. immediate family relationship
  2. customer in the business of lending $
  3. customer and representative are both registered persons with same firm
  4. customer and representative have a personal relationship outside broker-customer relationship
  5. customer and representative have a business relationship outside broker-customer relationship
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16
Q

Misrepresentation

A
  • qualifications, experience, and education
  • nature of services offered
  • fees to be charged
17
Q

Directed Brokerage Arrangements

A
  • prohibited by FINRA
  • prevents a mutual fund from choosing a broker/dealer for the execution of portfolio trades based on the amount of commissions the broker/dealer generates by selling the fund’s shares
18
Q

Terms of Prohibited Market Manipulation

A
  • painting the tape
  • wash sales
  • matched purchases
  • capping
  • pegging
19
Q

Front Running

A
  • unethical

- broker/dealer placing a personal order ahead of a previously received customer order

20
Q

Breakpoint Sale

A

encouraging a purchase below the amount that would qualify for reduction in sales load

21
Q

Criminal Penalties

A
  • fined up to $1 million and prison for up to 10 yrs

- up to 2.5 million fine for broker/dealers

22
Q

Code of Procedure

A
  • created to deal with alleged violations of SRO rules and federal securities laws
  • trade practice complaints
  • 25 days after receiving complaint to file an answer
  • 60 days to make a decision
  • 25 days to make an appeal
  • 21 days to schedule prehearing conference
23
Q

Uncontested Offer

Contested Offer

A

form of plea bargain initiated by the accused

24
Q

Acceptance, Waiver and Consent (AWC)

A

form of plea bargain initiated by the prosecution (FINRA)

25
Q

Code of Arbitration Procedure

A
  • offers participants a relatively easy method of settling disputes at a cost that is lower than formal procedures
  • 45 days to respond
  • dispute needs to be about $50,000 or less
  • monetary awards must be paid within 30 days of decision date
  • statue of limitations: 6 + years
  • member vs. member
  • member vs. associated person
  • associated person vs. associated person
26
Q

USA Patriot Act of 2001

A
  • US Treasury Department is lead agency for developing regulations in connection with anti-money laundering programs and requires broker/dealers to establish internal compliance procedures to detect abuses
  • Customer Identification Program to verify identity of any new customer
27
Q

Currency Transaction Reports (CTRs)

A
  • Bank Secrecy Act requires financial institutions to report currency transactions over $10,000 in a single day
28
Q

Suspicious Activity Reports

A
  • broker/dealers are required to file these reports involving transactions of $5,000 or more when financial behavior appears commercially illogical and serves no apparent reasonable business or legal purpose
29
Q

Anti-Money Laundering Rules

A
  • money laundering allows criminals to hide and legitimize proceeds derived from illegal sources
  • 3 stages: Placement, Layering, Integrating
30
Q

Office of Foreign Assets Control

A
  • US Treasury

- maintains a list of individuals and entities viewed as a threat to the US

31
Q

New Account Form

A
  • must be updated no less frequently than every 3 years

- must be sent to the customer within 30 days after account opening for verification of details

FINRA Series 6 (6 decks)

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