Chapter 11: Customer Accounts

new account form

broker dealers are required to maintain a record or new account forms needs to have information about the person as well as their investment objective information

trust account

created by a trustor and controlled by a trustee for the benefit of another person trustee and beneficiary may be the same person trustee acts under powers and limits set forth in a trust agreement

hypothecation

customer agrees to pledge securities in the account as collateral for margin (credit) from the broker dealer securiites are held in street name

cash account

customer must pay in full for securities settle T+2 investors myust be for all purchases within four business days of the trade T+4 if not, account it frozen, and transactions are limited to sell orders and purchases provided the customer has sufficient funds in that account prior to transaction free riding is a violation where an investor sells securities without ever paying

options agreement

customers must sign it within 15 days of account approval verify they read the options disclosure and understnad risk if dont sign, liquidate

securities that can be purchased on margin

-exchange listed stocks -OTC stocks -bonds -closed end funds - etfs - LEAPS with more than 9 months left -treasurey bonds

cannot purchase on margin

-IPO -OTC stocks not approved -mutual funds -options with less than 9 months -annuities

options account procedure

1. rep sends customer the options risk disclosure doc 2. customer account information is reviewed 3. customer can begin trading options 4. cusotmer signs and returns option agreement within 15 days

telemarketing rules

8am-9pm must state name of caller & firm, telephone number and address, reason for calling

UGMA, UTMA

adult custodian assumes fiduciary responsibility in managing the account for th eminors best interest securities registered in the name of the custodian assets transferred to the name of new adult minor's SSN in the account cannot be transferred between accounts, gifts are irrevocable donating assets can be a custodian

margin accounts

allow customers to [purchase securities using money borrowed from a broker dealer, and securities serve as collateral all short sales are executed in margin account

anonymous accounts

at a customers request, broker dealers can open accounts that a4re identified only by a symbol or number, but not an alias customer must still provide written statement of ownership and proof of identity

tennants in common account

each account holder owns a specified percentage of the assets bsaed on their contributions to the account; at each owners death, their portion is liquidated and distributed to the beneficiary

joing tenants with rights of survivorship

each owner has an undivided interest in the entire account, meaning all owners own 100% if one owner dies, that owners interest in the account passes to surviving owners married couples, parent and adult cild

Regulation T & margin account requirements

establishes margin requirements for purchase or short sale of securities customers deposit 50% of market value long margins, deposit $2000 or 100% of purchase price; maintain 25% short margins, minimum of $2000, maintain 30% marked to market daily

churning

increasing number of trades in the account to generate additional fees -- violation

suitability

know your customer rule -customers financial status -tax status -investment objectives must be obtained BEFORE EXECUTION of a recommended transaction account can still be opened without it but rep can't make recommendations

margin account disclosure

notice is required annually, reminding customers of risk of margin trading -can lose more than in account -can force sale of securities

OCC

options clearing corporation broker dealer provides an options disclosure document at or before the time a registered options prinicpal approves a customers account for trading options, this is prepared by the OCC

do not call list

people can add themselves to a firms internal list or federal trade comission national do not call registry ruels do not apply to existing customers of the firm opr contacts made to other firms, also does not apply if a registered rep has personal relationship with the individual or received prior written consent

discretionary acount

rep decides asset, amount, action time and price not discretionary power of attorney has been received by firm