Chapter 6
Under FINRA rules, all of the following are necessary to open a corporate account
- New account form -Corporate Charter ( proof of identity) -Corporate Resolution DOES NOT need Shareholder Approval
Non Marginable
- New issues -Non-Marketable Securities -Mutual -Limited Partnerships
To see which investments are suitable for customers what should registered rep inquire about ?
- investment objective -Financial status -tax status NOT HEALTH STATUS
Required time stamps for an ORDER TICKET
- time of order receipt -order entry -order execution
when can you start making recommendations to customer on OPTIONS strageties
- when Optinos Disclosure Document (ODD) and the account has been approved by Registered Options Principle
Discretionary Accounts
-Account must be approved by general principa or branch manager -Each order ticket must be marked "discretionary" -Every order ticket must be approved promptly by a general principal or a branch office manager
Discretionary Cash Account needs...
-Completed Customer New Account Form -Signed Trading Authorization -Signature of Manager on New account Form does NOT need Signed Customers Agreements
Fiduciary Account
-Custodial Account -UGMA account -Trust Account NOT partnership account
To determine suitability of recommendations to customer, inquiry should be ?
-Investment objective -investment experience -financial situation
What is required on an individual new account form ?
-Type of account - CASH or MARGIN -Customer name and address -Date of birth -Social security Number or Tax idenfiication number (TIN)
What are required to open up account ?
-country of citizenship and if non then they need to obtain the customers passport or Tax identification number TIN -customers DOB -If customer is employed by another financial firm; different practices NOT A LETTER OF REFERENCE
what is required to verify with customer every 36 months ?
-customer investment objective ; see if staying the same -customer address; see if they moved to change mail addy -net worth NOT Date of BIRTH bc it stays the same duhh
If customer fails to pay in Reg T time frame S+2
-firm can use SMA (credit line ) in the margin account to meet the requirement -customer can request an extension from self-regualotory organization - sell out unpaid position and freeze account for 90 days NOT ABLE TO liquidate the account and remit any balance due to the customer
Procedures for discretionary Account
-order ticket must be marked "discretionary" -discretionary order ticket must be approved by the manager or principal - Written Power of Attorney (POA) must be obtained from the customer before the discretionary trades are affected -Customer DOES NOT have to be contacted before each discretionary trade is executed
Consolidated Prime Broker Dealers
-provide services for instituional clients -consolidate positions for institutional clients -are FINRA members
How many days after opening OPTIONS ACCOUNT to sign and return the options agreement ?
15 days
Options Agreement have to be signed and returned by
15 days
Age at which person is responsible for the duties he/she contractually agrees to undertake
18
Minimum for MAINTENANCE for stock long/short margin accounts
25% for long / 30% for short
Minimum Finra
25% for long Stock 30% for SHORT
Mimimum requirement for SHORT stock position
30% of current market value
Under Regulation T, an extension may FIRST be requesrte
4th Business Day after Trade Date
Finra rules, if a member that has a senior citizen is being exploited:
A FREEZE can be placed for up to 55 business days on suspicious dispursements from the account but not on other non suspicious dispursements
Carli is famous and wants to open a brokerage account without using her name but rather a number what is the name of account best for her ?
A Numbered Account
Customer Identification Program ( CIP) is related to ..
Anti-Money Laundering
opening joint account for Husband and Wife then firm should obtain social security of :
BOTH OWNERS
interest rates charges pn customer debit balances are based on
Based on Broker Loan Rate
Account number may be changed to the correct one on a Order Ticket by
Branch Office Manager
An execution report shows that a wrong execution has occured who does the responsibility fall on
Brokerage firm executing the transaction
What is Brokers Loan Rate
Brokers borrow from banks using customer securities as collateral
Custodial Account for niece/nephew
Can be opened without Restriction and does NOT need parents permiission, nor nephews permission,
How to identify the corporation that wants to open a brokerage account?
Certified articles of incorporations
Joint account and checks
Checks need to be written in both of Names not just one
Guardianship Account
Created for a person that has been declared incompetent in a court proceeding
Per FINRA what is a customer complaint
Customer complaint has to be a WRITTEN statement from a customer alleging a grievance that invloce the activties of a member firm or its associated persons in connection with the solicitation or execution of a securities transactions ex: customer sends an email complaining about a rep purchase of General Motors in the clients brokerage account
Call loans made by bank to --> broker-dealers are secured by...
Customer margin Securities
all need to be completed for a Options account PRIOR to first trade EXCEPT -registered options principal must approve the account before the first trade - Customer must be sent an options disclosure document - New account form must be completed
Customer must complete an options agreement
Under the rules of the Options Exchanges, if there is material change in a customers financial condition then what must occur :
Customer new account form must be updated and the options agreement must be amended to reflect the change
Call loans made by banks to broker-dealers are secured by:
Customer security positions in margin accounts held by the firm
Bank Secrecy Act was created to
Develop regulations related to anti-money laundering programs
Custodial Account
Does not need extra paperwork
The Bank Secrecy Act of 1970
Enforcement of which act helps protect the financial system of terriorist financing and money laundering
In case of any Senior fraud/ abuse is made
Escalate the request to a supervisor in the Firm's compliance department
Three individuals in "Tenants in common ", if one dies then..
Estate assumes the tenancy of the deceased individual in the account
Regulator of enforcing provisions of the Bank Secrecy Act and PATRIOT ACT
FinCEN
When can a broker dealer freeze an account on suspision of Power of Attorney abusing the account
If the accountholder is over 65 and the broker-dealer has a suspicion that the guardian is abusing the account
JTWROS
Joint Trust With Rights Of Survivorship ( ask why a un married couple would like to open this account )
May not be purchased on Margin
Listen Stock Options
Broker dealer CANT ________ before it has obtained the customers investment profile info ?
Make Recommendations
Margin account ; customer signed Hypothecation agreement and Loan Consent what does this not allow them to do
Mix and match the customers securities owned by the brokerage firm
when and to who is a Form CRS needed to provide ( customer relationship sumary
Needed to be given PRIOR or AT the making of a recommendation or account opening, required ONLY for RETAIL clients and even wealthy but NOT for institutional
if potential client lives 500 miles but wants to open an account what needs to happen ? do he/she need to show up at branch ?
No physical contact is required between the customer and registered representative, but the branch manager must speak to the. identify by comparing information provided by the customer to a public database
Short Selling can take place
ONLY in a margin account
For PARTNERSHIPS aka COMPANYS do you use SSN or Tax identifications number
ONLY the TIN ( tax identification number ) of the partnership in which they have to apply to the IRS for one - because SSN is ONLY when opening an account for humans not a company
What is least likely to be considered suitability info for a customer opening a new account at brokerage firm ?
Occupation
Customer must be sent WHAT following or, prior, to, opening an OPTIONS accounts
Options Disclosure Document
A registered Representative is allowed to choose ___ and ___ without the trading authorization of customer
PRICE AND TIME, if he/she selects any more such as the SECURITY or # of shares then the order is no discretionary and NEEDS a POA from customer
Opening account for non resident alien
Passport number
Per FINRA Order Tickets must be prepared by
Prior to entry of the order
Regulation T paying system
Reg T allows customer to pay up to 4 business days after trade date ( S+2; 2 business days regular way settlement + 2 "grace" days " - if funds are not collected on 4th day either extension can be made or position can be sold
Who CANT approve new accounts
Registered Representatives need to be Branch Managers and General/Municipal Principal
If SENIOR client is not feeling up to par with his health and wants to do irrational decisions
Representative should CONTACT the client and explain the risk inherent in the customers strategy
NOT permitted in a cash account
SHORT sale of stock
Custodial Accounts Non Permitted Transaction
Short Sale of Common Stock this is because its a Cash ONLY are NOT margin accounts
Broker-dealer must check each new customers name against _____ to comply with anti money laundering regulations
Specially Designated Nationals List
What is SAR ?
Suspicious Actitives Report ; more for suspicion of abuse
Free Riding
Taking the brokerage firm for a free ride , customer never paid for the stock purchase, account under Reg T can be frozen for up to 90 days but the PROFIT still belongs to the customer ex: customer places order in cash account to buy 200 of abc at 40$ but the next day rises to 50$ and the customer places orde to sell. On settlement ay of purchase customer does not pay and just tells broker to pay 10 dolars since stock
What type of joint accound provides that a deceased tenants share of ownership in the account pass to his or her estate upon death
Tenants in Common
Under whose SSN,TIN is an UGMA/UTMA account opened
The Beneficiary aka grandchild or minor
Customer ask to place an order calls back and cancels
The order is binding on the customer, meaning the customer cant just change his or her mind after order has been placed properly, execution is binding on both the firm and the customer
If Registered Representative fails to accurately complete the Order Ticket then..
The order will be returned to the representative for entry of the execution price
Family or close family friends can NOT be appointed representative due to
The registered Representative CAN NOT as the trustee because of the conflict of interest
Trust accounts
The trust agreement will specifify the transactions that the trustee is allowed to peform - a copy of the trust agreement must be obtained before any transactions are allowed -the account will be a cash account unless the trust agreement authorizes the opening of a margin account -option trading is permitted
If customer request in writing and no specific reason is given that customer mail can be held for a maximum of
Three months
An account registration that allows customer to name a person to who the securities will be registered once he/she dies is a ...
Transfer on death (TOD)
Trustee vs Trustor
Trustee: controls the transfer/distributions of assest from a trsut Trustor: is the person who established the trut and he/she may name him/herself the intitial guardian thereyby contorlling the assets of the trust
Managed Wrap Accounts
Type of customer account where all services perfored by the broker are "wrapped" into a single account and a single annual fee based as a percentage of assets under management is charged. - no commission charge for each transaction performed -no are charges imposed for safekeeping of securities - ALL SERVICES COVERED IN SINGLE "wrap" fee .
If a customer was single but then went on a honeymoon what should the registered representative do
Update the Customers Account File
When opening account for Senior and to prevent exploitation of Seniors contact must be given of
a Trust contact person
Customer account records to be kept by a reg representative under a FINRA rule are
a record by customer name or account number of each security position
Mutual Funds can be used as collateral :
after position has been held in the account for 30 days an paid off
Reasonable Basis suitability
broker-dealers obligation to know the risk of an investment strategy before determining whether it is suitable for at least some investors
recommendations of a registered rep to a customer on options strategies can still be made if ...
customer has still not signed the options agreement
Finra member firm uses a wealthy client group where a "team" of a registered rep with differing specializations services those accounts in order to do this the firm must
document the role and responsibilities of each member of the team
Broker does not need WHAT ____ from customer prior to opening a new customer account ?
educational background
If client tells you to proceed with buying an investment you tell her you do not recommend then you... ?
execute the order, but note his or her exception in the customers account file
"know your Customer" (KYC) Rule, in order to open and maintain account the rep must
follow KYC procedures as part of an effective Anti-Money Laundering (AML) Program
What is a Customer Relationship Summary ( CRS Form ) ?
form that discloses all the fees and cost that the customer will pay, only for retail and wealthy customers not institutional should be given prior or at start of recommendations of investments or account opening
What document must be disclosed to customer that just opened up account
how to go about getting the SIPC brochure; must be given every time a client wishes to obtain it ( securities investor protection corporation)
Holds when it comes to suspicisous
if situation is suspicious all the suspicious activity can make the account be hold 15 days to investigate, if found that something is weird then it gets 10 more days, then if it becomes part of gov investigation it gets 30 more days for a total off 5 days only of suspicious dispursements
Per FINRA "SUITABILITY " means what ?
investment recommendations made to a customer are appropiate for that investor
Excessive Trading
is Dependant upon a clients suitability so it is defiend differenttly for all customers
New account form purpose
obtain as much knowledge possible about the customer
Custodial account
only the custodian can enter trades
Options Disclosure Document must be sent ..
prior or at the Opening of Options Account
Acceptable way to open a brokerage account for an Investment Adviser
separate client accounts w/ a power of attorney given by each client to the broker dealer who will then oversee the investment adviser
SSN numbers that are used for IRS reporting are
the Minors Social Security #
If client wants to open new account but does not want his id to be photocopied then..
the account CAN NOT be opened until the firm verifies the identity of customer with the DL info or other undocumented method
Firms must disclose BUSINESS CONTINUITY PLANS when ?
when a customer opens up a new account, in WRITING
