CUSTOMER ACCOUNTS

If any more than price or time is selected, the trade is _____________ and requires a written power of attorney from the customer from FINRA.

"Discretionary"

Is a list of state-approved securities that can be purchased by commercial banks, savings and loan, pension plan and for fiduciary accounts. Typically consists of conservative, high-grade bonds and preferred stocks.

"Legal List"

A customer buys 100 shares of ABC stock at $10 as an initial transaction in a margin account. The customer must deposit:

$1,000 Even though minimum equity to open a long margin account is $2,000, this does not apply if the securities in the account are fully paid. A customer cannot be asked to deposit more than 100% when buying since this is the maximum potential loss. The customer wants to buy $1,000 of stock, so 100% or $1,000 must be deposited.

A customer makes a purchase of $22,100 of ACME Income Fund in her margin account. The customer must deposit:

$22,100 Mutual fund shares are new issues sold with a prospectus, and as such, require that 100% of the purchase amount be paid. Once the position has been held in the account for 30 days, it becomes marginable and has loan value.

A customer buys 1 ABC Jan 85 Put @ $6 and sells 1 ABC Jan 75 Put @ $2 when the market price of ABC is $83. The customer must deposit:

$400 The customer has created a debit spread: Buy 1 ABC Jan 85 Put @ $6 Sell 1 ABC Jan 75 Put @ $2 $4 Debit The customer's maximum potential loss is the $400 debit, which is also the deposit.

A customer buys 1 ABC Jan 50 Call @ $4 and 1 ABC Jan 50 Put @ $5 on the same day in a margin account when ABC closes at $49. The customer must deposit:

$900 To buy an option, 100% of the premium must be deposited. $400 and $500 = $900 deposit.

Which documents are completed when opening a margin account?

1 new account form 2. margin agreement 3. loan consent agreement 4. credit disclosure statement A new account form must be completed whether an account is set up as a cash or a margin account. The paperwork that is unique to opening margin accounts includes the margin agreement, which the customer must sign, pledging the securities in the account as collateral for the margin loan; the loan consent agreement, which is customarily signed, where the customer permits the securities in the account to be lent out for short sales by others; and the credit disclosure statement, which explains how the loan balance is computed and interest is charged.

Regulation T defines 3 types of accounts in which securities transactions can occur:

1. Cash account where full payment is required 2. Margin account where partial payment is required. 3. Arbitrage account for going "short against the box."

To open an account for a new customer, what 4 critical pieces of information must be obtained before the account can be opened:

1. Customer Name 2. Mailing Address 3. Social Security Number 4. Birthdate

What are four examples of acceptable methods for opening an investment adviser account?

1. Each client opens a cash account and gives a Third Party Trading Authorization to the investment adviser 2. Each client opens a margin account and gives a Third Party Trading Authorization to the investment adviser 3. The adviser opens an Omnibus cash account holding all of his clients' funds and securities 4. The adviser opens an Omnibus margin account holding all of his clients' funds and securities

If an investor wishes to open a margin account, which of the following paperwork is customarily completed?

1. New Account Form 2. Hypothecation Agreement 3. Loan Consent Agreement 4. Credit Agreement

The maximum amount of customer securities that can be rehypothecated by a broker is:

140% of the debit balance The maximum amount of customer securities that can be pledged to a bank by a broker is 140% of the customer's debit balance. This amount of securities results in the bank almost exactly funding the amount of money loaned by the broker to the customer. The broker is prohibited from obtaining a higher loan amount from the bank than he actually lends to the customer.

Under Regulation T, the time period granted by FINRA for an extension of payment on monies due is:

2 business days.

If a customer requests in writing and no specific reason is given, that customer's mail can be held for a maximum of:

3 months FINRA does not allow a customer's mail to be held unless the customer requests in writing. As long as the request does not exceed 3 months, no other information is needed. However, if the customer wants the mail held for more than 3 months, then a valid reason must be given in the request, such as safety or security concerns.

Minimum maintenance margin for a short account is:

30% of the market value.

Barring an extension request, under Regulation T, payment for a securities transaction must be received no later than:

4 business days after the trade date. While it is true that Regulation T of the Federal Reserve Board requires that customers pay for securities purchases "promptly," the payment must be received no later than "S + 2," which is 2 grace days past settlement. Since regular way settlement is 2 business days after trade date, the latest time to collect payment is 2 + 2 = 4 business days after trade date. If payment is not received on the 4th business day after trade date, under extraordinary circumstances, a Reg. T extension may be requested from the exchange where the security trades. This extension gives another 2 business days for collection. If no payment is made, the unpaid position must be liquidated and the account "frozen" for 90 days. When the account is frozen, the customer must pay in advance for purchases.

The definition of a pattern day trader is a person who executes at least:

4 day trades in a 5 business day period The definition of a "pattern day trader" is a person who engages in at least 4 day trades in a 5 business day time period. Day traders take on greater risks than normal customers and are therefore subject to a more stringent suitability determination and must receive a risk disclosure document prior to account opening.

Regulation T sets the initial margin to purchase a marginable stock position at:

50% of the purchase amount

Customer account records to be kept by a registered representative under FINRA rules are: I a record by customer name or account number of each security position II a record of the aggregate position maintained among all customers in each security III copies of customer order tickets - both open and executed IV records of dividends and interest received on street name securities A. I and II only B. III and IV C. I, II, III D. I, II, III, IV

A. I and II only FINRA rules require that a registered representative keep records of all positions within a customer's account (that makes sense) and a record by company of all customer positions in that security (that way, you know how many shares of the company's stock are held in all your customer accounts). There is no requirement for a registered representative to maintain copies of order tickets or dividends received - these records are maintained by the brokerage firm.

Under FINRA rules, a written power of attorney is required for a registered representative to choose which of the following order related items? I Security to be traded II Size of the order III Price of Execution IV Time of execution A. I and II B. III and IV C. I, II, III D. I, II, III, IV

A. I and II.

If a customer wishes to have his account transferred to another broker at the same firm, which of the following statements are TRUE? I The branch manager must approve the transfer II The branch manager does not have to approve the transfer III The new account form should be updated by the registered representative to whom the account is transferred IV The new account form should be updated by the registered representative from whom the account is transferred A. I and III B. I and IV C. II and III D. II and IV

A. I and III If a customer wishes to have his account transferred to another broker at the same firm, the branch manager must approve the transfer. There is no requirement to complete another completely new "new account form" for this customer - the firm already has this record. It would make sense for the new registered representative to review the information on the new account form with the customer and update it as necessary.

f a customer places an order with a registered representative and calls back 20 minutes later stating "Cancel the order!" Which of the following statements are TRUE? I If the order was not executed, the order can be canceled without any further action needed II If the order was not executed, the order can only be canceled with approval from the branch manager III If the order was executed and there is a loss upon close-out, the customer is responsible for the loss IV If the order was executed and there is a loss upon close-out, the registered representative is responsible for the loss A. I and III B. I and IV C. II and III D. II and IV

A. I and III If a customer places an order and then decides to cancel it, as long as the order was not executed, it can be canceled without recourse - there is no need to get the manager's approval to cancel the order. If the order was executed prior to the customer's call to cancel the order, any loss upon close-out would be the customer's responsibility. If there was no error in execution, the order is binding on the customer. Only if there is an error in execution is any loss binding on the firm.

A customer has 1,000 shares of a stock and wishes to sell 100 of the shares. He places a limit order to sell 100 shares at $52. The order is placed, but is erroneously executed as "Sell 1,000 shares at $52." The confirmation to the customer states that 1,000 shares were sold at $52. Which statements are TRUE? I Any loss due to the firm's error must be absorbed by the firm II Any loss due to the firm's error must be absorbed by the customer III The firm must replace the shares that were erroneously sold IV The customer must accept the 1,000 share trade but can immediately buy back the shares in the market A. I and III B. I and IV C. II and III D. II and IV

A. I and III The customer placed a limit order to sell 100 shares at $52. The trade was erroneously executed and 1,000 shares were sold at $52. The firm erroneously executed the trade. If the firm made an error in execution, any loss due to the firm's error must be absorbed by the firm.

In order to independently verify the identity of a corporation that wishes to open a brokerage account, which documentation is acceptable? I Certified articles of incorporation II Better Business Bureau membership certificate III State-issued business license IV State-issued driver's license of each corporate officer A. I and III B. I and IV C. II and III D. II and IV

A. I and III To verify the identity of a corporation that wishes to open an account, government issued identification is required to perform the match. This would take the form of the company's certified articles of incorporation (which are certified by the state); or a state issued business license. The Better Business Bureau is a private entity, so a membership certificate from the BBB cannot be used for the match. The driver's license of each corporate officer does not prove the existence of the corporation, so these are of no use either.

A customer has opened a margin account and has signed only the hypothecation agreement, but not the loan consent agreement. The brokerage firm can do which of the following with the customer's securities? I Commingle the customer's securities with those of other customers II Lend the stock to another customer who wishes to effect a short sale III Commingle the customer's securities with securities owned by the brokerage firm IV Pledge the customer's securities to a bank for a loan A. I and IV B. II and III C. I, II, IV D. I, II, III, IV

A. I and IV When a customer signs a margin account agreement, he or she allows the brokerage firm to keep the securities in street name; to commingle them with other customers' margin securities; and to pledge those securities to a bank for a loan. The brokerage firm cannot commingle customer securities with its own stock positions. When the loan consent agreement is signed by the customer, the customer allows the securities in the account to be loaned out on short sales. If this document is not signed, then the customer's securities cannot be lent out by the brokerage firm on short sales.

Custodian accounts can be opened as a: I Cash account II Margin account III Arbitrage account A. I only B. I and II C. II and III D. I, II, III

A. I only

Approval of new accounts for FINRA member firms can be performed by the: I Registered Representative II Branch Office Manager III Financial and Operations Principal A. II only B. II and III C. I and III D. I, II, III

A. II only Under FINRA rules, new accounts must be approved, in writing, by a Branch Office Manager (Series 9/10 license). Registered representatives cannot approve the opening of new accounts. The Financial and Operations Principal (Series 27 license) is responsible only for the firm's financial reporting and back office operations.

A corporation is making a combined primary offering of newly issued shares and secondary offering of shares held by officers, where both issues are offered through a single prospectus. Which statement is TRUE about margin rules on this offering? A. Neither the primary nor secondary offering can be purchased on margin B. Only the primary offering can be purchased on margin C. Only the secondary offering can be purchased on margin D. Both primary and secondary offerings can be purchased on margin

A. Neither the primary nor secondary offering can be purchased on margin Under FRB rules "new" issues are not eligible for margin until 30 days after the offering. The definition of a "new" issue for the purposes of this rule is a prospectus offering. Both the primary and secondary shares are being offered through the prospectus; so no margin is permitted.

A new customer wishes to open an options account with your firm. All of the following procedures are required prior to the first trade EXCEPT the: A. customer must complete an Options Agreement B. Registered Options Principal must approve the account before the first trade C. customer must be sent an Options Disclosure Document D. new account form must be completed

A. customer must complete an Options Agreement To open an options account, the new account form must be completed and the date that the customer was furnished with the latest Options Disclosure Document (ODD) must be placed on the new account form. The ROP must approve the new account form and the first trade in writing. The customer does not have to complete the Options Agreement prior to the opening of the account. The Agreement must be sent to the customer and must be signed and returned within 15 days of opening the account.

Order ticket information must be recorded by the member firm prior to order: A. entry B. execution C. cancellation D. confirmation

A. entry

Under FINRA rules, when opening a new account for the customer, the: A. name of the representative servicing the account must be recorded in the account file B. CRD number of the representative servicing the account must be recorded in the account file C. name of the branch manager supervising the account must be recorded in the account file D. CRD number of the branch manager supervising the account must be recorded in the account file

A. name of the representative servicing the account must be recorded in the account file As part of the customer account information required by FINRA, the name of the representative assigned to the account must be recorded. This way, FINRA knows who is responsible if there is an "issue" with the account. Note that this rule (FINRA Rule 4512) only requires the recording of the names of the representative(s) assigned to the account. It does not require the CRD number of the representative as part of the record, though this information is readily available.

Delivery of the privacy notice required under Regulation SP is required for: A. retail customers B. institutional customers C. retirement plan customers D. any of the above

A. retail customers

Under FINRA rules, fixed fee accounts should be reviewed for appropriateness for customers at a minimum:

Annually

A customer is long 1,000 shares of ABC stock at $50 in a margin account. The minimum maintenance margin requirement is: A. $10,000 B. $12,500 C. $15,000 D. $25,000

B. $12,500

A customer is short 1,000 shares of ABC stock at $60 in a margin account. The minimum maintenance margin requirement is: A. $15,000 B. $18,000 C. $30,000 D. $60,000

B. $18,000.

The maximum amount of customer securities that can be rehypothecated by a broker is: A. 100% of the debit balance B. 140% of the debit balance C. 180% of the debit balance D. 200% of the debit balance

B. 140% of the debit balance

An individual is declared incompetent in a court proceeding. What type of account can be opened for this person with appropriate documentation? A. Cash account B. Guardianship account C. Joint account D. An account may not be opened

B. Guardianship account

The reorganization department of a brokerage firm would be responsible for handling the following: I Notifying customers of a takeover II Notifying customers if a bond is being called III Preparing customer confirmations IV Keeping a record of debit and credit balances in customer accounts A. I only B. I and II C. III and IV D. I, II, III, IV

B. I and II The reorganization department notifies customers of takeovers and tender offers. Also, they notify customers if bonds are being called. Essentially, the department is responsible for handling any unusual situation that would affect the customers' position in their securities holdings. The purchase and sales department prepares and mails customer confirmations. The margin department keeps a record of securities positions, and debit and credit balances in customer accounts.

Which of the following are defined as products offered by investment advisers? I Non-managed fee based accounts II Managed fee based accounts (wrap accounts) III Per trade commission charge accounts A. I only B. I and II only C. II and III only D. I, II, III

B. I and II only Fixed fee accounts (non-managed fee based accounts) only cover trading costs. They do not include charges for asset allocation and portfolio management. Wrap accounts include asset allocation and portfolio management. Any fixed fee product is defined as an "investment adviser" product. Per trade commission charge accounts are brokerage products. If a firm offers fixed fee accounts, it must do so through a registered Investment Adviser subsidiary; and its representatives must be licensed as "IARs" - Investment Adviser Representatives.

When opening an options account which of the following statements are TRUE? I The Options Disclosure Document must be sent at, or prior to, opening the account II The Options Disclosure Document must be sent to the customer at account opening, and must be signed and returned within 15 days III The Options Agreement must be sent at, or prior to, opening the account IV The Options Agreement must be sent to the customer at account opening, and must be signed and returned within 15 days A. I and III B. I and IV C. II and III D. II and IV

B. I and IV An account is considered "opened" with the first trade. Prior to opening an options account, the new account form must be completed and the customer must be sent the latest Options Disclosure Document (ODD). This is a pamphlet entitled "Characteristics and Risks of Standardized Options" and is basically an options primer. The date that the customer was sent the ODD is noted on the options new account form. A copy of the options new account form is part of the Options Agreement that is sent to the customer, to be signed and returned within 15 days of account opening. The Options Agreement is a recap of the customer new account profile including the suitability determination and it qualifies the customer for a level of options trading, detailing which options transactions are permitted.

When comparing fixed fee accounts to wrap accounts: I Fixed fee accounts generally only cover transaction costs II Fixed fee accounts generally cover transactions costs, asset allocation and portfolio management III Wrap accounts generally only cover transaction costs IV Wrap accounts generally cover transaction costs, asset allocation and portfolio management A. I and III B. I and IV C. II and III D. II and IV

B. I and IV Fixed fee accounts (non-managed fee based accounts) only cover trading costs. They do not include charges for asset allocation and portfolio management. Wrap accounts include asset allocation and portfolio management. Any fixed fee product is defined as an "investment adviser" product.

A customer that discovers an error on his or her account statement must report the error: I promptly II before the next account statement is generated III to the representative servicing the account IV to the member firm maintaining the account A. I and III B. I and IV C. II and III D. II and IV

B. I and IV The issue at hand is that FINRA is concerned about registered representatives that do unauthorized trading in their customer accounts to generate commission income, without the customer knowing about or authorizing the transactions. So FINRA requires that a legend be placed on customer account statements that any errors found must be reported to the member firm promptly. The person to whom the report cannot be made is the registered representative, since if he or she is effecting unauthorized trades, then the report just might get "lost."

Which of the following statements are TRUE regarding joint accounts? I Orders can be given by either party II All parties must enter orders together III Checks can be made out in the name of either party IV Checks can only be made out to all parties together A. I and III B. I and IV C. II and III D. II and IV

B. I and IV.

Which of the following are types of joint accounts? I Partnership account II Tenancy in common account III Joint tenants with rights of survivorship account IV Custodian account A. I and IV B. II and III C. I, II, III D. I, II, III, IV

B. II and III

Under the rules of the Options Exchanges, if a customer's financial condition changes materially, then which of the following will be amended? I Options Disclosure Document II Options Agreement III New Account Form Information A. I and II only B. II and III only C. I and III only D. I, II, III

B. II and III only The rules of the options exchanges require that if a customer's financial condition changes materially, the options agreement signed by that customer must be amended to reflect the change. A revised options agreement must be sent to the customer, and must be signed and returned within 15 days. At the same time, customer account information would also be updated (which just makes sense). A new Options Disclosure Document is sent to customers only if the Options Clearing Corporation changes its rules.

Regulation T applies to which of the following: I U.S. Government bonds traded over-the-counter II Municipal bonds traded over-the-counter III Common stocks traded on exchanges IV Preferred stocks traded over-the-counter A. I and II B. III and IV C. III only D. I, II, III, IV

B. III and IV Reg. T of the Federal Reserve Board only applies to non-exempt securities - these are the securities that are NOT exempt from the provisions of the Securities Act of 1933; and the Securities Exchange Act of 1934. Governments and municipals are exempt, so Reg. T does not apply. However, industry minimum margin rules still apply. Common stock and preferred stock are non-exempt. Therefore, Reg. T. applies; as well as industry minimum margin rules.

Which of the following positions would receive the greatest benefit of reduced margin requirements from portfolio margining? A. Short naked call B. Long stock/Long put C. Short stock/Short put D. Long call/Long put

B. Long stock/Long put Portfolio margin is based on the risk of a portfolio, rather than applying a fixed margin percentage to each security position. When a stock position is hedged by an option, as is the case with a long stock/long put position, then the maximum loss on the stock position is reduced to approximately the premium paid for the put (net of any difference between the stock cost and the put strike price). Thus, portfolio margin results in a much lower margin requirement for stock positions that are hedged by options.

A customer must sign and return which of the following documents within 15 days after opening an options account? A. Options Disclosure Document B. Options Agreement C. New Account Form D. Loan Consent Agreement

B. Options Agreement A copy of the options new account form is part of the Options Agreement that is sent to the customer, to be signed and returned within 15 days of account opening. The Options Agreement is a recap of the customer new account profile including the suitability determination and it qualifies the customer for a level of options trading, detailing which options transactions are permitted. If the agreement is not returned, the registered representative is prohibited from accepting new opening trades - only closing transactions are allowed.

Which of the following are synonymous terms for the "parties" to a brokerage account? A. First Party / Customer B. Second Party / Customer C. Second Party / Broker D. Third Party / Customer

B. Second Party / Customer The "First Party" to a brokerage account is the brokerage firm; the "Second Party" to a brokerage account is the customer; the "Third Party" to a brokerage account is anyone other than the broker or customer.

A client has an options account that is qualified to buy options and sell covered calls. The client calls his representative, telling him that he wants to sell naked calls in the account. Which statement is TRUE about this? A. The representative can do this without taking any further action B. The "Special Statement for Uncovered Options Writers" must be provided before executing the transaction C. The "Options Disclosure Document" must be provided before executing the transaction D. The representative must open a separate options account for the customer and segregate the resulting naked options positions

B. The "Special Statement for Uncovered Options Writers" must be provided before executing the transaction Most firms have a structure for options account qualification that codes accounts as Level 1, 2, 3 or 4. A Level 1 account can only sell covered calls (the most conservative and popular options strategy) or buy puts to hedge existing stock positions; A Level 2 account can also buy calls and buy puts to speculate; A Level 3 account can also take spread positions; and A Level 4 account can do anything, both covered or naked.

A new customer has come into your firm to open an account. He tells you that he is 21 years old, recently graduated from college and that he is looking for a job. He is contacting you because he recently inherited $250,000 and wants to invest it for growth and income. When you are completing the new account information, you ask him for his street address and he tells you that he was just evicted from his apartment and has moved into a long-stay hotel until he finds a new place to live. Which statement is BEST about this situation? A. The address to be used for Customer Identification purposes is the client's last known residence address B. The address to be used for Customer Identification purposes is the address of a close relative C. The address to be used for Customer Identification purposes is a P.O. Box where he is receiving mail D. The account can only be opened as a cash account without any street address being required

B. The address to be used for Customer Identification purposes is the address of a close relative

A customer places an order to buy 100 shares of ABC at the market. The execution report shows the trade occurring at $45.63. The firm sends out a confirmation which states that the trade occurred at $45.38. Which statement is TRUE? A. The customer will pay $4,538 plus any applicable commissions B. The customer will pay $4,563 plus any applicable commissions C. The customer can DK the trade D. The customer will pay $4,538 and can submit a claim to arbitration for an additional $25.00.

B. The customer will pay $4,563 plus any applicable commissions.

A registered representative takes an order from a customer to buy 100 shares of SPQR stock at $40 and writes the order ticket for processing. The registered representative fails to note the execution price on the ticket. Which statement is TRUE? A. The order will be processed as a market order by default B. The order will be returned to the representative for entry of the execution price C. The order will be canceled without any further action taken D. The order will be referred to the member firm's compliance department for resolution

B. The order will be returned to the representative for entry of the execution price Incomplete order information on an order ticket will result in the ticket not being processed. It will be returned to the representative for entry of all of the required information.

Under FINRA rules, "suitability" means that: A. securities that are delivered on settlement are in "good" form B. investment recommendations made to a customer are appropriate for that investor C. new accounts that are opened at the firm are of a similar nature to existing accounts D. registered representatives hired by the firm have passed all appropriate licensing examinations

B. investment recommendations made to a customer are appropriate for that investor.

When comparing a "Convenience Account" to Transfer on Death (TOD) registration: A. opening a Convenience Account does not require a court order while a Transfer on Death account does B. the named person in a Convenience Account has no ownership rights upon the owner's death, while the named person in a TOD account does C. the named person in a Convenience Account has access to account funds only upon the death of the account owner, while the named person in a TOD account has access to account funds at will D. opening a Convenience Account requires a smaller minimum deposit than the opening of a Transfer on Death account

B. the named person in a Convenience Account has no ownership rights upon the owner's death, while the named person in a TOD account does.

Regulation U controls credit from:

Bank to broker Regulation U controls credit from bank to broker. Regulation T controls credit from broker to customer. The Federal Reserve only deals with member banks - it does not deal with the public.

What two persons can approve the opening of an account under FINRA rules at a FINRA member firm?

Branch Office Manager or General Principal

Interest charges on customer debit balances are based on the:

Broker Loan Rate, also known as the Call Loan Rate Brokers borrow from banks using customer securities as collateral at the Broker Loan rate, also termed the Call Loan rate. The interest charged to customers on loans made by brokers is based on this rate (e.g., the interest rate charged might be "Broker Loan Rate + 1/2%").

What is the best way to ensure that a broker-dealer has an effective AML program?

By following Know Your Customer procedures that are risk-based The FINRA rule on creating a firm's AML (Anti-Money Laundering) policy is quite generic, however their interpretations state that the AML Policy should include "KYC" (Know Your Customer) procedures that permit the firm to make a reasonable risk-based determination as to its customers, its customers' sources of income, and expected activity. Also part of the AML procedures are the requirement for an annual outside independent audit; and for annual AML training. However, the key part of the interpretation is "KYC" - and this is the best answer.

Which one of the following orders requires specific customer authorization? A. "Buy 100 shares of ABC at the best price available" B. "Sell 100 shares of ABC at the market" C. "Buy 100 shares of any computer stock priced at under $40" D. "Sell 100 shares of ABC at $40 if it gets to that level"

C. "Buy 100 shares of any computer stock priced at under $40".

A customer is short 1,000 shares of ABC stock, valued at $5 per share. The minimum maintenance margin requirement is? A. $1.50 per share B. $2.50 per share C. $5.00 per share D. $7.50 per share

C. $5.00 per share

A customer buys 1 ABC Jan 50 Put @ $2 and sells 1 ABC Jan 60 Put @ $5 when the market price of ABC is $58. The customer must deposit: A. $200 B. $300 C. $700 D. $1,000

C. $700 The customer has created a credit spread: Sell 1 ABC Jan 60 Put @ $5 Buy 1 ABC Jan 50 Put @ $2 $3 Credit The customer receives $300 in premiums for exposing himself to a potential 10 point ($1,000) loss on the options (obligated to buy at $60 under the short put; can sell at $50 with the long put). The potential loss must be deposited, which is $1,000 - $300 collected = $700.

On the same day in a margin account, a customer buys 1 ABC Jan 45 Put @ $4 and sells 1 ABC Jan 60 Put @ $11 when the market price of ABC is $56. The customer must deposit: A. $400 B. $700 C. $800 D. $1,500

C. $800 The customer has created a short put spread resulting in a $700 credit. This position is profitable if the market should rise (bullish). The positions set up as: Sell 1 ABC Jan 60 Put @ $11 Buy 1 ABC Jan 45 Put @ $4 $7 Credit If the market should rise, both contracts expire "out the money" and the customer keeps the $700 credit (maximum potential gain). On the other hand, if the market drops, the short put is first to be exercised, requiring the customer to buy the stock at $60. If the market continues to fall, the long put allows the customer to sell the stock at $45, for a maximum loss on the stock of 15 points. Since 7 points were received in premiums, the maximum potential loss is $800. Margin rules require that the customer put up the $800, since this is his or her maximum loss exposure.

If a customer sells securities and fails to deliver on settlement date, the position must be bought in how many business days later? A. 1 B. 5 C. 10 D. 90

C. 10 days

A customer that wishes to open a new account is asked by the registered representative for a government issued photo identification. The customer gives the representative a copy of his driver's license, which the representative notes has expired 3 months ago. Which statement is TRUE? A. Because the identification document was government issued, it can be used to verify the customer's identity B. As long as the identification has not expired more than 6 months ago, it can be used to verify the customer's identity C. As long as another non-documentary method is used to verify the customer's identity, the account can be opened D. This account cannot be opened unless the customer renews his or her driver's license and presents it to the member firm

C. As long as another non-documentary method is used to verify the customer's identity, the account can be opened

Which of the following information is required on a new account form? I Type of account - cash or margin II Type of securities that can be traded in the account III Country of citizenship of account holder IV Proof of domicile of account holder A. I and II only B. III and IV only C. I and III only D. I, II, III, IV

C. I and III only The type of account (cash or margin) is needed when opening a new account, since a margin account requires the customer's signature on a separate "margin agreement." The country of citizenship of the account holder is needed because the PATRIOT Act requires that a copy of the customer's passport be obtained if the account is being opened for a non-U.S. citizen. In addition, the non-U.S. citizen must present a U.S. tax identification number. There is no requirement for Proof of Domicile - this documents the state (not the country) in which the customer legally resides.

When opening an account to trade stocks and options, which of the following signatures are needed on the new account form(s)? I Registered options principal signature II General principal signature III Registered representative signature IV Customer signature A. I and III B. II and IV C. I, II, III D. I, II, III, IV

C. I, II, III The customer's signature is not required on a new account form. It is required on the options agreement, margin agreement and loan consent agreement.

Recommendations by a registered representative to a customer about options strategies are unsuitable if the: I customer has not received the Options Disclosure Document II opening of the account has not been approved by the Registered Options Principal III representative is unsure about the client's ability to assume the risk associated with a specific options strategy IV customer has not signed the Options Agreement A. I and III B. I and IV C. I, II, III D. I, II, III, IV

C. I, II, III Recommendations about options should not be made to a customer unless he has received an Options Disclosure Document (ODD); and the account has been approved by the Registered Options Principal; and the registered representative believes that the recommendations are suitable for the customer. The customer must sign and return the Options Agreement no later than 15 days after opening the account. There is no requirement to sign the Agreement prior to any recommendations being made. If the agreement is not returned within 15 days, new opening transactions in the account are prohibited - only closing transactions are allowed.

Which of the following paperwork is required for trades to be effected in an account for a deceased person who held an individual account at a brokerage firm? I Executor's authorization certificate II Copy of the death certificate III Affidavit of domicile IV Third party trading authorization A. I and II B. II and III C. I, II, III D. I, II, III, IV

C. I, II, III There are no trading authorizations in Executor accounts - only the executor gets to trade the account.

When opening an account to trade stocks and options, which of the following signatures are needed on the new account form(s)? I Registered options principal signature II General principal signature III Registered representative signature IV Customer signature A. I and III B. II and IV C. I, II, III D. I, II, III, IV

C. I, II, III The customer's signature is not required on a new account form. It is required on the options agreement, margin agreement and loan consent agreement.

In order to open a discretionary cash account, which of the following procedures are required? I Completed Customer New Account Form II Signed Trading Authorization III Signed Customer's Agreement IV Signature of Manager on New Account Form A. I and II only B. I and III only C. I, II, IV D. II, III, IV

C. I, II, IV A signed customer's agreement is only required for a margin account; it is not used in a cash account. The customer's agreement is the hypothecation agreement. To open a discretionary cash account, a new account form must be completed by the registered representative and approved in writing by the manager. The customer must provide a signed trading authorization to the firm (first party trading authorization) allowing discretionary trades.

A customer wishes to open an options account with your firm. Which of the following procedures are required PRIOR to the first trade? I The new account form must be completed II The customer must be sent an Options Disclosure Document III The customer must sign an Options Agreement IV The Registered Options Principal must approve the account before the first trade A. I only B. II and III only C. I, II, IV D. I, II, III, IV

C. I, II, IV.

A registered representative is notified verbally by the nephew of a client that his uncle has passed away. Which statements are TRUE regarding the actions that the registered representative can take based on this information? I The registered representative can freeze the assets in the account because the nephew is considered to be an immediate family member II The registered representative cannot freeze the assets in the account because the nephew is not considered to be an immediate family member III A certified copy of the customer's death certificate must be provided before the assets in the account can be frozen IV A copy of the customer's will must be provided before the assets in the account can be frozen A. I and III B. I and IV C. II and III D. II and IV

C. II and III

Portfolio margining: I is based on the rules of Regulation T II is based on probable loss potential III generally results in lower margin requirements and greater leverage than standard margin calculations IV generally results in higher margin requirements and lower leverage than standard margin calculations A. I and III B. I and IV C. II and III D. II and IV

C. II and III Portfolio margin is a "risk" based margin method that gives substantially lower margin requirements for lower risk position. It is calculated using probability-based loss percentages. It recognizes that if positions are hedged, such as a stock position hedged by the purchase of a put, then the loss potential of the combined position is much lower. Portfolio margin produces a much lower margin requirement for such a hedged position (the margin is basically equal to the maximum loss) than the separately calculated margins for each position that Regulation T would require. Lower margin requirements mean that customers who use portfolio margin get greater leverage. Also note that portfolio margin can only be used by institutional or wealthy sophisticated individual customers.

To open a portfolio margin account: I the account must be approved for covered options writing II the account must be approved for naked options writing III minimum equity of $100,000 must be maintained IV minimum equity of $1,000,000 must be maintained A. I and III B. I and IV C. II and III D. II and IV

C. II and III The minimum equity to open a portfolio margin account for an individual customer is $100,000. This compares to the minimum equity requirement of $2,000 for a regular margin account. Portfolio margin can only be used by institutional or wealthy sophisticated individual customers. To open a portfolio margin account, the account must be qualified for naked options writing, which requires a more-detailed suitability determination and requires not only branch manager approval, but also separate approval of a designated Registered Options Principal.

Which of the following statements are TRUE regarding joint accounts? I Minors can participate in a joint account II Minors cannot participate in a joint account III Adults can participate in a joint account IV Adults cannot participate in a joint account A. I and III B. I and IV C. II and III D. II and IV

C. II and III Only adults can participate in a joint account, since only adults have the legal capacity to sign a binding joint account agreement. Minors cannot participate in a joint account - the only way to open an account for a minor is via a fiduciary account such as a custodian, guardian, or trust account. In such an account, the fiduciary opens an account for the benefit of the designated individual. Only the fiduciary can trade the account or draw checks on the account.

Which TWO of the following positions would receive the greatest benefit of reduced margin requirements from portfolio margining? I Long stock/Short call II Long stock/Long put III Short stock/Long call IV Short stock/Short put A. I and III B. I and IV C. II and III D. II and IV

C. II and III Portfolio margin is based on the risk of a portfolio, rather than applying a fixed margin percentage to each security position. When a stock position is hedged by an option, as is the case with a long stock/long put position or a short stock/long call position, then the maximum loss on the stock position is reduced to approximately the premium paid for the protective long put or long call. Thus, portfolio margin results in a much lower margin requirement for stock positions that are hedged by options.

A customer places an order to buy 1,000 shares of a stock at $40. The registered representative enters the order. After execution, the registered representative notices that he had erroneously entered the wrong number of shares on the order ticket. The amount read 100 shares, and this amount was purchased. Which of the following statements are TRUE? I The firm is only obligated to provide 100 shares at $40 II The firm is obligated to provide 1,000 shares at $40 III Any additional cost of filling the remaining 900 share order is the responsibility of the firm IV Any additional cost of filling the remaining 900 share order is the responsibility of the customer A. I and III B. I and IV C. II and III D. II and IV

C. II and III The firm is obligated to make good on the order and provide the customer with 1,000 shares at $40 - as long as the market would have allowed that particular order to be executed. This is an error in execution, and such errors are the responsibility of the firm.

Under the provisions of the PATRIOT Act, if a non-U.S. citizen wishes to open a brokerage account, which of the following must be obtained? I A copy of the customer's U.S. passport II A copy of the customer's foreign passport III The customer's U.S. tax ID number IV The customer's foreign tax ID number A. I and III B. I and IV C. II and III D. II and IV

C. II and III To open an account for a non-U.S. citizen, a copy of the customer's foreign passport must be obtained; and the customer must have a U.S. tax identification number.

Under FINRA rules, if a member suspects that a senior citizen is being financially exploited: I a temporary hold may be placed on disbursements from the account for up to 10 business days II a temporary hold may be placed on disbursements from the account for up to 15 business days III any hold placed on the account, if supported by the member's review of the situation, can be extended for another 10 business days IV any hold placed on the account, if supported by the member's review of the situation, can be extended for another 15 business days A. I and III B. I and IV C. II and III D. II and IV

C. II and III.

Which of following documents are unique to margin accounts? I new account form II margin agreement III loan consent agreement IV credit disclosure statement A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV

C. II, III, IV A new account form must be completed whether an account is set up as a cash or a margin account.

All of the following paperwork is customarily needed to open a margin account EXCEPT: A. Margin agreement B. Loan consent agreement C. Joint account agreement D. Credit agreement

C. Joint account agreement

Which of the following positions would receive the greatest benefit of reduced margin requirements from portfolio margining? A. Short spread B. Long spread C. Short stock/Long call D. Short stock/Short put

C. Short stock/Long call Portfolio margin is based on the risk of a portfolio, rather than applying a fixed margin percentage to each security position. When a stock position is hedged by an option, as is the case with a short stock/long call position, then the maximum loss on the short stock position is reduced to approximately the premium paid for the long call (net of any difference between the stock sale price and the call strike price). Thus, portfolio margin results in a much lower margin requirement for stock positions that are hedged by options.

A customer directs a registered representative to execute a trade which the representative believes is unsuitable for the customer. After explaining this, the customer directs that the trade be performed. The representative should: A. refuse the order B. obtain the manager's written approval before entering the order C. execute the order, but note his exception in the customer account file D. close the account

C. execute the order, but note his exception in the customer account file

Two brothers wish to open an account to trade stocks, with one brother depositing $100,000, and the other brother depositing $200,000. When opening the account, the brothers specify that they want their respective interests to go to their beneficiaries if they should die. The account should be opened as a(n) A. individual account in the name of the larger contributor; with trading authorization granted to the smaller contributor B. joint account with rights of survivorship C. joint account with tenancy in common D. partnership account requiring a signed copy of the partnership agreement

C. joint account with tenancy in common In a joint account with tenancy in common, each owner has a divided interest in the account. A specific percentage ownership is assigned to each participant. In this case, the brother contributing $100,000 out of $300,000 total will have a 1/3 interest, while the other brother contributing $200,000 out of $300,000 total will have a 2/3 interest. With tenancy in common, if one party should die, that person's interest goes to his beneficiary or estate. Thus, this form of ownership meets the brothers' wishes. A joint tenants with rights of survivorship account is not appropriate since each party owns an undivided interest in this account. If one person dies, the other party wholly owns that account.

Under FINRA rules, numbered accounts are: A. prohibited B. permitted with the prior approval of FINRA C. permitted if the firm maintains a written statement of the customer attesting to ownership D. permitted without any additional supporting documentation

C. permitted if the firm maintains a written statement of the customer attesting to ownership FINRA requires that accounts be maintained in customer name; however it will allow a numbered account to be maintained if the firm keeps on file a written statement by the customer attesting to ownership. For example, professional traders might worry that if their trades are seen in their name in the firm, that unscrupulous employees might try to "ghost" their trades. If the account is maintained as a numbered account, then whoever sees the order does not know the identity of the customer

In order to open a discretionary cash account, all of the following procedures are required EXCEPT: A. signature of manager on new account form B. signed trading authorization C. signed customer's agreement D. completed customer new account form

C. signed customer's agreement

Custodian accounts can ONLY be opened as a:

CASH ACCOUT

Under FINRA rules, orders can be effected for an account that is transferred from another brokerage firm when the:

Carrying firm validates the account transfer form Under FINRA rules for transfer of accounts from firm to firm. The customer must complete an account transfer form detailing positions at the receiving firm. This is sent immediately to the "old" carrying firm, which has 1 business day to verify (validate) the positions. After this point, the verified report must be returned to the receiving firm and the account transferred within the next 3 business days.

A customer has bought an options contract and after 15 days, still has not returned the signed Options Agreement. The customer is only allowed to make which of the following transactions in this account?

Closing Sale

To compute equity in the combined account:

Compute the long and short accounts separately and then add them together

The principal reason for an institutional investor to open a prime brokerage account is:

Consolidation of account positions with one broker

What paperwork is required for trades to be effected in an account for a deceased person who held an individual account at a brokerage firm?

Court order or executor's authorization certificate

If a customer wishes to open a margin account, the customer must sign a ________________, which explains how the loan balance is computed and how interest will be charged on the loan.

Credit Disclosure Agreeement

In a custodian account, only the __________ is permitted to trade. Anyone can donate into such an account.

Custodian

Call loans made by banks to broker-dealers are secured by:

Customer security positions in margin accounts held by the firm Call loans are secured by customer margin securities. Fully paid customer securities cannot be pledged for these loans - they must be segregated and placed in safekeeping. The loans are not secured by cash nor do firm securities positions collateralize these loans. Loans using firm securities as collateral (proprietary positions) must be kept separate from loans using customer securities as collateral.

In an existing margin account, a customer buys 100 shares of ABC stock at $50 per share and 1 PDQ Nov 25 Call @ $5. What is the customer's margin call? A. $500 B. $2,000 C. $2,500 D. $3,000

D. $3,000 In a margin account, the customer needs to deposit 50% of the purchase price to buy the stock and 100% of the purchase price to buy the calls. To buy $5,000 of stock, the Regulation T requirement is $2,500. To buy $500 of options, the Regulation T requirement is $500. Therefore, the total deposit amount is $3,000.

If a FINRA member firm maintains fee based accounts for customers, the supervisory procedures should include: I Periodic review of fee based accounts to determine whether they remain appropriate for their respective customers II Review of any changes in customer objectives or financial circumstances III Comparison of total asset based fees charged to such accounts to the charges that would have been imposed on a commission basis A. I only B. I and II C. II and III D. I, II, III

D. I, II, III The concern of FINRA is that customers may be charged more for fee based accounts than they would have been charged if they simply paid a commission on each trade. Thus, the volume of trading in the account must be high enough to justify a fixed fee charge. Also, FINRA requires that fee based accounts be reviewed periodically to determine that they are appropriate for their respective customers; and to determine if changes in customer objectives or financial circumstances require changing how charges are assessed in the account. Finally, FINRA recommends that firms compare (preferably annually) the charges assessed on a fee basis in customer accounts to the charges that would have been imposed on a per-trade commission basis.

Which of the following information is needed to open a new cash account? I Customer name II Customer birthdate III Customer citizenship IV Customer occupation A. I and III B. II and IV C. I, II, IV D. I, II, III, IV

D. I, II, III, IV

A registered representative must keep which of the following records related to each existing customer account? I Copy of the new account form information II Chronological record of trades III Current account statement detailing securities positions for each customer IV Aggregate position in each security held by all customers detailed by location A. I only B. II and III only C. I, II, IV D. I, II, III, IV

D. I, II, III, IV At all times the registered representative must keep the following records relating to each existing customer account under FINRA rules: 1. Copy of new account form information 2. Chronological record of trades 3. Current account statement showing securities positions and 4. Physical location of securities positions held.

Under MSRB rules, inquiry should be made about which of the following in order to make suitable recommendations to customers? I Investment objective II Tax bracket III Investment Experience IV Financial Situation A. I only B. II only C. II and IV D. I, II, III, IV

D. I, II, III, IV.

Which of following statements about the conduct of customer accounts are TRUE? I Securities in a custodian account cannot be held in street name II Fiduciary accounts cannot be opened as margin accounts unless specifically authorized in the trust document III Numbered accounts are permitted only if a written statement is obtained from the customer attesting to ownership IV Discretionary account trading authorizations are valid until revoked in writing A. I and II only B. III and IV only C. I, II, IV D. I, II, III, IV

D. I, II, III, IV.

A customer account holds $100,000 of Negotiable Certificates of Deposit that are maturing. The customer has inquired about alternative investments that can be made with these funds. To make a suitable recommendation, inquiry should be made as to the customer's: I Liquidity requirements II Tax bracket III Other investments A. I only B. III only C. I and II only D. I, II, III

D. I, II, III.

Under FINRA rules, a registered representative must obtain and retain which of the following information relating to the customer's account? I Customer Address II Country of Citizenship III Financial Status A. I only B. I and II C. II and III D. I, II, III

D. I, II, III.

Regarding arbitration agreements between member firms and customers: I FINRA requires each customer to sign an arbitration agreement as part of the account opening process II each member firm can require each customer to sign an arbitration agreement as part of the account opening process III each member firm must provide the customer with a separate copy of the arbitration agreement for signature and return within 10 days of account opening IV each member firm must provide the customer with a separate copy of the arbitration agreement for signature and return within 30 days of account opening A. I and III B. I and IV C. II and III D. II and IV

D. II and IV FINRA does not require arbitration agreements between customers and member firms. However, each member firm can require this (and usually does). FINRA does require that if a customer signs an arbitration agreement as part of the account opening process, then the customer must be sent a separate "stand alone" copy of the agreement and must sign an acknowledgement of receipt within 30 days of account opening.

In a joint tenants with rights of survivorship account: I a specific percentage ownership is assigned to each party II each party owns an undivided interest in the account III if one party dies, that person's interest goes to his beneficiary or estate IV if one party dies, the other party wholly owns the account A. I and III B. I and IV C. II and III D. II and IV

D. II and IV In a joint tenants with rights of survivorship account, each party owns an undivided interest in this account, that is, legally each tenant 100% owns the account. If one person dies, the other party wholly owns that account, avoiding probate. This is the typical ownership for an account for a married couple.

Portfolio margining: I is suitable for unsophisticated investors II is suitable for sophisticated investors III requires a minimum account equity of $2,000 IV requires a minimum account equity of $100,000 A. I and III B. I and IV C. II and III D. II and IV

D. II and IV The minimum equity to open a portfolio margin account for an individual customer is $100,000. This compares to the minimum equity requirement of $2,000 for a regular margin account. Portfolio margin can only be used by institutional or wealthy sophisticated individual customers. To open a portfolio margin account, the account must be qualified for naked options writing, which requires a more-detailed suitability determination showing that the customer is sophisticated and able to bear loss. Such an account requires not only branch manager approval, but also separate approval of a designated Registered Options Principal.

Which statements are TRUE if a customer's account is frozen? I No trading can occur during the freeze period II Trading is permitted during the freeze period III The freeze period lasts for 30 days IV The freeze period lasts for 90 days A. I and III B. I and IV C. II and III D. II and IV

D. II and IV When an account is "frozen," for a 90 day period, the customer must pay cash in advance to buy. If the customer wishes to sell, the security must be delivered to the broker before the sell order is entered. There is no prohibition on trading during such a "freeze" - the customer must simply pay in advance, instead of paying "promptly, but no later than S + 2" (regular way settlement of 2 business days + 2 additional "grace" business days).

Under SEC rules, customer account information must be verified by the member firm: I within 15 days of account opening II within 30 days of account opening III every 12 months IV every 36 months A. I and III B. I and IV C. II and III D. II and IV

D. II and IV SEC rules require that the basic customer account information collected at account opening be sent separately to the customer for verification within 30 days of account opening; and this information must be sent for verification and updating (if needed) every 36 months thereafter.

Regarding arbitration agreements between member firms and customers: I FINRA requires each customer to sign an arbitration agreement as part of the account opening process II each member firm can require each customer to sign an arbitration agreement as part of the account opening process III each member firm must provide the customer with a separate copy of the arbitration agreement for signature and return within 10 days of account opening IV each member firm must provide the customer with a separate copy of the arbitration agreement for signature and return within 30 days of account opening A. I and III B. I and IV C. II and III D. II and IV

D. II and IV.

All of the following are types of joint accounts EXCEPT: A. Tenancy in Common account B. Joint Tenants with Rights of Survivorship account C. Tenants by Entireties account D. Omnibus account

D. Omnibus account Ownership options for joint accounts are either Tenancy in Common, where each person has a specified ownership interest; or Joint Tenants With Rights Of Survivorship, where each tenant owns 100% of the account. In some states, a "JTWROS" account is termed "Tenants By Entireties." An Omnibus account is an account of pooled customer monies, where there is no specific identification to the broker carrying the account of who the specific customers are. Investment advisers who manage money for many customers often use such accounts.

A customer wishes to open a new account, but refuses to give his or her social security number and date of birth, claiming that the release of such information would allow the customer's identity to be stolen. Which statement is TRUE? A. As long as the customer signs a statement to the effect that he or she is the true account owner, then the account can be opened B. The account can be opened as long as the firm is able to verify the customer's identity C. The account can be opened as long as the manager approves D. The account cannot be opened

D. The account cannot be opened There are 4 critical pieces of information that must be collected to open a new account for an individual customer - Name, Address, Birthdate, and Social Security number. The member firm must independently verify the customer's identity - either by matching this information to a government issued identification such as a driver's license or passport; or by using a database service that allows computer matching of this information. If the customer does not give this information, then the account cannot be opened.

A customer opens a short margin account by selling short 300 shares of XYZ stock at $80 per share and deposits the required margin. If the stock declines in value by 25%, the customer's equity in the account will A. remain unchanged B. increase by 12.5% C. increase by 25% D. increase by 50%

D. increase by 50% The equity has increased from $12,000 to $18,000 - a 50% increase.

When comparing a full power of attorney given in a brokerage account to a limited power of attorney, the person given the: A. full power of attorney can draw checks only B. full power of attorney can enter orders only C. limited power of attorney can draw checks only D. limited power of attorney can enter orders only

D. limited power of attorney can enter orders only A person holding a limited power of attorney in a brokerage account can enter orders but cannot draw checks. A person holding a full power of attorney can do both - but any checks must be drawn to account name - not to the name of the third party.

If it is determined that a customer account that is paying an annual flat-fee would have been cheaper if the customer paid a commission on each trade, then the member firm: A. must refund the excess charges to the customer, with interest, based on the previous 12 months' trading experience B. is permitted to deduct the excess charges from the registered representative's paycheck and credit them to the customer's account C. must transfer the customer account to a discount broker that charges only on a per trade basis and that does not maintain fee based accounts D. must contact the customer, providing the information needed to determine if the customer should maintain the fee based account

D. must contact the customer, providing the information needed to determine if the customer should maintain the fee based account Non-Managed Fee Based Accounts (NMFBA) must be reviewed annually for appropriateness for each customer. If, as a result of the review, it is determined that an NMFBA is more expensive, the customer must be contacted and given the information necessary to make a determination that he or she wishes to retain this type of account.

All of the following procedures are required to open a Portfolio Margin account EXCEPT: A. the account must be approved by the designated ROP for uncovered options writing B. the customer must receive a copy of the risk disclosure document at, or prior to, account opening C. the customer must sign an acknowledgment that he or she has read and understands the risk disclosure document D. the account must be approved by the CBOE or FINRA for exemption from Regulation T margin requirements

D. the account must be approved by the CBOE or FINRA for exemption from Regulation T margin requirements FINRA requires that a portfolio margin account be opened as an options account that is qualified for naked options writing. This requires a more-detailed suitability determination and requires not only branch manager approval, but also separate approval of the designated Registered Options Principal (this is the "main office" ROP in charge of compliance as opposed to a regular branch manager-ROP). The customer must be provided with a portfolio margin risk disclosure document at, or prior to, the initial transaction in the account and must sign an acknowledgment that he or she has read and understands the disclosure document prior to the initial transaction in the account. There is no requirement for the member firm to get each customer account approved by the CBOE or FINRA.

Custodian accounts, Guardian accounts, and Executor accounts are all __________ accounts.

Fiduciary Accounts

Under FINRA rules, initial approval of new accounts, in writing, is performed by the:

General Principal

Regarding SMA in a margin account that is at 50% margin, for every $1.00 decrease in market value in a short account, SMA:

Goes up by $1.50

Regarding SMA in a margin account that is at 50% margin, for every $1.00 increase in market value in a long account, the SMA:

Goes up by$.50 cents

How must an account opened under the Uniform Gifts to Minors Act be titled?

In the name of the custodian for the minor. Under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA), any adult can open a custodian account for any minor. The account must be titled in the name of the custodian for the minor - so both names are there. Also note that the social security number of the minor is used on the account, not the social security number of the custodian.

Assets in an UGMA account transfer to the new adult at:

Legal age

What document, once signed, permits a broker dealer to borrow customer securities to effect short sales for other clients?

Loan Consent Agreement

Which brokerage firm department would be responsible for keeping customer account records?

Margin department The margin department is a bit of a misnomer since this department keeps a record of all stock positions, and debit and credit balances in customer accounts.

SEC Regulation SP covers:

Notification to customers of a member firm's privacy policies and practices

The ______________________, required for options trading, is signed by the registered representative, who is attesting to the fact that the information on the form is true; and must be approved before the account is traded by the registered options principal.

Options New Account Form

Under FINRA rules, order tickets (which are now electronic) must be prepared in writing prior to:

Order entry

Under the provisions of Regulation T, monies must be collected for securities purchases:

Promptly Regulation T requires that payments for securities purchases be collected "promptly," but no later than "S + 2" - or no later than industry "regular way settlement" of 2 business days + 2 additional "grace" days; for a maximum time period to collect of 4 business days.

A customer has a proprietary position in an account that he wishes to transfer. He would be notified that the account:

Proprietary position must either be liquidated or retained at the carrying firm If the assets are held in proprietary products of the carrying firm, these cannot be transferred - since they are only offered by the carrying firm. The customer would have to liquidate these positions and transfer the money proceeds of the liquidation; or the customer could retain the proprietary positions at the carrying firm.

The brokerage firm department that prepares and mails trade confirmations to customers is the:

Purchase and Sales department The purchase and sales department prepares and mails customer confirmations. The margin department keeps a record of securities positions, and debit and credit balances in customer accounts. The reorganization department of a brokerage firm handles corporate reorganizations such as tender offers and takeovers. The order department routes orders to the appropriate exchange; and sends execution confirmation reports back to the person placing the order.

If there is no activity in a customer's account, statements are mailed:

Quarterly

Recommendations by a registered representative to a customer about uncovered call writing strategies are unsuitable if the:

Recommendations about options should not be made to a customer unless he has received an Options Disclosure Document; and the account has been approved by the Registered Options Principal; and the registered representative believes that the recommendations made are suitable for the customer.

Which of the following signatures must appear on the New Account Form when a customer is opening a cash account?

Registered Representative AND Manager or Principal. The customer does not need to sign the new account form - he or she does sign the margin agreement and loan consent agreement if a margin account is opened, however

The regular new account form for equity securities requires the signature of the ___________ and the ___________

Registered Representative and the General Principal.

Delivery of the privacy notice required under Regulation SP is required for:

Retail Customers Regulation SP ("Statement of Privacy") requires member firms to provide a privacy notice to retail customers only. Firms cannot divulge non-public information about customers to third parties unless the firm has given notice to the customer that this may happen; and the customer has not elected to opt out of the disclosure. The privacy notice is given at account opening and must be made available annually thereafter.

If no extension request is made, securities that have been purchased by a customer for which no payment has been received, must be liquidated after:

S + 2 Regulation T of the Federal Reserve Board requires that customers pay for securities purchases "promptly" but no later than "S + 2" = industry regular way settlement + 2 business days. Since regular way settlement is 2 business days, if payment is not received on the 4th business day ("S + 2"), then under extraordinary circumstances, a Reg. T extension may be requested from FINRA. This extension gives another 2 business days for collection - the same as another regular way settlement period. If no payment is made, the unpaid position must be liquidated and the account "frozen" for 90 days. When the account is frozen, the customer must pay in advance for purchases.

Under the requirements of the USA PATRIOT Act, if a member firm suspects that an account is engaging in money laundering, the firm is obligated to file a(n):

SAR with FinCEN If a member firm suspects that a customer is engaging in money laundering, a Suspicious Activities Report ("SAR") must be filed with FinCEN - the Financial Crimes Enforcement Network.

tax liability in a custodian account is the responsibility of the:

Tax liability in a custodian account is the responsibility of the minor; each year any income is reported to the IRS using the minor's social security number. Tax is due on that income in the year it was received - there is no waiting until the minor reaches adult age.

Custodian accounts opened by parents for their minor children that have substantial dividend or interest income are:

Taxable at the parent's tax bracket If a custodian account is opened by a parent for a minor who is age 18 or under; and if the income exceeds $2,100 in 2018; then the income is taxed at the parent's rate instead of the minor's rate. The IRS is attempting to stop parents from shifting income to their children, who would typically have less income and thus would be taxed at lower rates.

To open a partnership account, the social security number(s) or tax identification number to be used is (are) the number(s) of:

The Partnership To open an account for any legal business entity such as a corporation, partnership or trust, the tax identification number of the entity must be used

A new customer wants to open an account at your firm. When you ask him for a street address, he tells you that he will be moving soon to a different apartment complex and wants to use his business address. Which statement is TRUE about this?

The business address can be used for Customer Identification purposes and the account can be opened One of the critical pieces of information that must be obtained at account opening is the customer's address - either residence or business street address. Also acceptable is the residence or business address of a next of kin.

Customer mailings can be sent by e-mail instead of through the physical mail system if:

The customer provides a valid e-mail address. This is done by the customer e-mailing the request for electronic mailings.

When opening a custodian account, the social security number to be used on the account is that of:

The minor Since custodian account property is considered to be "owned" by the minor, the social security number of the minor (not the custodian) is used on the account. The custodian does not have to be the father or mother of the minor!

If a retail customer gives a market-not held order:

The order is treated as a "day" order.

A tender offer has been made for PDQ common shares. The brokerage firm department that would handle the tendering of shares is the:

The reorganization department The reorganization department of a brokerage firm handles corporate reorganizations such as tender offers and takeovers.

If a customer wishes to give a gift of securities to her nephew under the Uniform Transfers To Minors Act, the age for transfer of the account to the minor is determined by:

The transfer age is set by the custodian, up to the maximum age permitted by the State

Investment adviser accounts are essentially regular customer accounts with a _______________ authroization given to the Investment Adviser.

Third Party Trading Authorization

How can verification be done on the customer's information when opening a new account?

This verification can be done either by matching the 4 critical pieces of information to a valid government issued identification (which cannot be expired) or by using a database service to perform the match.

A type of brokerage account where the customer is charged a single annual fee for all account services, regardless of activity in the account, is known as a:

Wrap Account

Earlier this year, a client of yours wrote a letter to the firm, requesting that his mail be held for 2 months, which your firm did. Later in the year, the customer writes another letter, asking that the mail be held for another 2 months. What is the appropriate action to take?

You can follow the customer's written instructions and hold the mail for an additional 3 months if the letter included an acceptable reason for holding the mail.

An existing customer must be notified about SIPC and where SIPC can be contacted:

annually by the member firm At, or prior to, account opening, the customer must be provided with the telephone number and web site address of SIPC (Securities Investor Protection Corp., which insures customer accounts against broker-dealer failure), through which the customer can obtain a copy of the SIPC brochure. In addition, this information must be provided to the customer annually thereafter.

To open an options account, the customer must be sent the Options Disclosure Document:

at or prior to opening the account

Customers must be given information about SIPC:

at, or prior to, account opening At, or prior to, account opening, the customer must be provided with the telephone number and web site address of SIPC (Securities Investor Protection Corp., which insures customer accounts against broker-dealer failure), through which the customer can obtain a copy of the SIPC brochure. In addition, this information must be provided to the customer annually thereafter.

FINRA requires that, if a fee based account is recommended to a customer, the customer must receive a :

disclosure document that details all services provided and costs involved, at, or prior to, account opening.

The customer information used to verify the opening of a new account must done within:

within a reasonable time after account opening.