Chap 8 cards
A broker-dealer that accepts funds and securities from customers and its correspondent member firms would most likely be which of the following? A) A carrying firm B) An investment company C) A fully disclosed introducing firm D) A depository trust
A) A carrying firm Most firms choose to introduce their customers to another member firm known as a clearing or carrying firm to handle back-office tasks, such as clearing trades, sending trade confirmations, settlement and reporting compliance, trade execution, and custody of customer funds and securities.
Your broker-dealer, rather than clear its own securities transactions, chooses to introduce its business to another firm that will clear, processes and handle all back-office operations for it. The firm receiving the business is known as A) a carrying firm. B) a receivership. C) a depository trust. D) a fully disclosed firm.
A) a carrying firm. A firm that chooses to introduce its customers' business to another firm to clear and process transactions, as well as handle all back-office tasks such as sending trade confirmations and taking custody of customer funds and securities, is known as an introducing or fully disclosed firm. The firm receiving the business is known as the carrying or clearing firm.
A broker-dealer that accepts the risk of holding a particular security in its account to facilitate trading and provide liquidity in that security is best described as A) a market maker. B) a clearing corporation. C) a direct participation program. D) a holding company.
A) a market maker. Market makers are broker-dealers with a line of business to stand ready to buy or sell securities (make markets) with the view of being profitable by buying low and selling high or selling high and buying low (short selling). Market making is risky. Firms that do this must demonstrate to FINRA that they can manage the operational and financial risk.
For margin transactions taking place through introducing broker-dealers, those who do not clear their own transactions, extension requests are A) never permitted. B) made by the introducing broker-dealer. C) made by the clearing firm. D) made by the customer.
C) made by the clearing firm Broker-dealers who are self-clearing will make their own extension requests. For those that are not self-clearing, known as introducing broker-dealers, the extension request must be made by the clearing firm.
Three kinds of Broker-Dealers
Carrying Firms (clearing Firms) Fully Disclosed (indroducing) firms Prime Brokers
Which of the following would be a secondary market transaction? A) A broker-dealer arranges for a customer to purchase an APO B) A broker-dealer arranges for a customer to purchase mutual fund shares C) A broker-dealer arranges for a customer to purchase an IPO D) A broker-dealer arranges for a customer's order to be executed on the NYSE
D) A broker-dealer arranges for a customer's order to be executed on the NYSE IPOs, APOs, and mutual fund transactions involve the issuer selling to the public, which are primary market transactions. Secondary market transactions are between investors (which is what takes place on the NYSE as well as other exchanges and the OTC market).
Correspondent firms would be likely to have relationships with which of the following types of broker-dealers? A) Introducing B) Fully disclosed C) Market maker D) Self-clearing
D) Self-clearing A self-clearing (or carrying) firm holds funds and securities of the fully disclosed or introducing firm's customers and performs related functions, such as sending confirmations and statements for them. Those firms for whom the carrying firm performs these services are known as their correspondents.