customer accounts quiz
A customer has a restricted margin account, with $5,000 of SMA. The customer wishes to buy $10,000 of a marginable listed stock. The customer must deposit: A $0 B $2,500 C $5,000 D $7,500
A $0 To buy a marginable security, whether the account is restricted or not, the customer must deposit the Regulation T requirement To buy $10,000 of a marginable stock, the customer must deposit $5,000 (50% Regulation T requirement). The existing $5,000 of SMA can be used to meet this requirement.
A customer's short margin account is properly margined and shows a credit balance of $60,000. Interest would be charged on a balance of: A 0 B $20,000 C $40,000 D $60,000
A 0 Interest is only charged on debit balances, which are monies loaned by the firm to the customer. Credit balances in short margin accounts are not subject to any interest charges (however, the firm may charge a rate of interest for the stock loan).
A customer has an existing margin account with the following positions: Long: 1,000 XYZ CmnMkt Value: $20,000 Debit Bal: $15,000 SMA: $1,000 How much cash can the customer withdraw (borrow) from the account? A 0 B $500 C $1,000 D $2,000
A 0 This account is at minimum maintenance margin. If the SMA of $1,000 were borrowed from the account, the margin would go below 25% minimum maintenance. If the withdrawal causes the account to fall below minimum maintenance, no withdrawal is permitted. SMA can only be borrowed if the account is above minimum maintenance margin - and it can only be borrowed in an amount that brings the account to maintenance - not below maintenance.
At what age does a natural person possess the complete legal capacity to be held liable for the duties he or she contractually agrees to undertake? A 18 B 21 C 59 1/2 D 65
A 18 A "natural person" is a human being (as compared to other "legal persons" such as corporations and partnerships). In the vast majority of states, the legal age to enter into a binding contract is 18 (Nebraska is an outlier with an age of 19!).
A long margin account is restricted under Regulation T if the margin percentage falls below: A 50% B 40% C 30% D 25%
A 50% A long margin account is "restricted" under Regulation T if it falls below the initial 50% margin percentage.
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.
If a customer calls his registered representative and states the following: "I just got my account statement and I see that your recommendations have lost 15% in value. Clearly, you have made unsuitable recommendations and you will be hearing from my attorney." Which statement is TRUE under FINRA rules regarding how the representative should handle this? A No action need be taken by the representative because the customer has not complained in writing B FINRA includes oral complaints in its definition of a complaint that must be documented and resolved by the member firm C A record of the complaint must be filed with FINRA within 15 business days D A record of the complaint must be filed with the SEC within 15 business days
A No action need be taken by the representative because the customer has not complained in writing FINRA defines a customer "complaint" as one received in writing - screamers don't count.
A customer must be sent which of the following at, or prior to, opening an options account? A Options Disclosure Document B Options Agreement C Loan Consent Agreement D Chicago Board Options Exchange manual
A Options Disclosure Document 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. A loan consent agreement allows the customer's securities to be loaned out on short sales - this only occurs with stocks and bonds. A copy of the CBOE manual must be made available to customers upon request.
Your customers wish to give a gift of securities to their friend's child. Which statement is TRUE? A The gift can be given in a custodial account without restriction B The gift can be given in a custodial account only with the prior approval of the parents C The gift can be given in a custodial account only with the prior approval of the child D The gift cannot be given in a custodial account
A The gift can be given in a custodial account without restriction Any adult can open a custodial account for a minor; and any adult can donate into a custodial account.
Dividends on stock that has been sold short: A are debited to the short seller's account B are credited to the short seller's account C are credited to the short seller's SMA balance D have no effect on the short seller's account
A are debited to the short seller's account Short sellers owe any dividends paid on shares that they have borrowed to the lender of the stock. The dividends are credited to the lender's account and debited to the short seller's account.
An elderly customer has a discretionary account with your firm. The power of attorney signed by the customer for the account is non-durable. If the customer becomes mentally incapacitated, the registered representative handling the account: A can no longer effect discretionary trades for that customer B must liquidate the account and wait for instructions from the court appointed guardian C can continue to execute discretionary trades for that customer D can only close existing positions but cannot introduce new positions in the account
A can no longer effect discretionary trades for that customer A non-durable power of attorney becomes void if the grantor becomes mentally incompetent. In contrast, a durable power of attorney continues in force if the grantor becomes mentally incompetent. All powers of attorney die when the grantor dies
Stock held in the custodial account is the subject of a rights offering. All of the following actions by the custodian are appropriate EXCEPT: A letting the rights expire unexercised B selling another security in the account and using the proceeds to exercise the rights C donating the funds required to exercise the rights D selling the rights and reinvesting the proceeds
A letting the rights expire unexercised The custodian cannot let the rights expire unexercised, since this is the same as "throwing away" money and is not in the best interests of the account. All the others would be considered appropriate actions.
SEC Regulation SP covers: A notification to customers of a member firm's privacy policies and practices B selective disclosure of material non-public information by issuers C standardization of disclosure of financial and non-financial information by issuers D registration filings with the SEC by small business issuers
A notification to customers of a member firm's privacy policies and practices Regulation SP ("Statement of Privacy"), passed in 2000, requires financial institutions to provide customers with a copy of their privacy policies and procedures, including whether customer information is provided to third parties; and requires that customers be given the ability to "opt out" of any such disclosures.
A customer wishes to give a gift of securities to her nephew under the Uniform Gifts To Minors Act. The registration on a custodial account is: A one custodian for one minor B up to two custodians for one minor C one custodian for up to two minors D any number of custodians for any number of minors
A one custodian for one minor The registration on a custodial account is one custodian for one minor. There can not be more than one of each on an account.
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 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.
FINRA member firms are required to follow special procedures when opening accounts for all of the following EXCEPT an employee of a FINRA member firm who wishes to open a securities account at: A that firm B another FINRA member firm C a non-member bank D a non-member investment adviser
A that firm If an employee of a FINRA member firm wishes to open an account at that firm, then no special procedures are required. However, if an employee of a FINRA member wishes to open an account at another member firm, or at a non-member bank or investment adviser, then: prior written consent of the employing member firm must be obtained; the executing member must be notified in writing of the employee's association with another member firm; and on written request of the employer member, the executing member must provide duplicate confirmations and statements.
A customer sells short 1,000 shares of XYZ at $60 in a margin account, regular way settlement. Two days after the trade, XYZ has dropped to $40. The minimum maintenance margin requirement is: A $10,000 B $12,000 C $15,000 D $18,000
B $12,000 The minimum maintenance margin requirement for short stock positions is 30% of the current market value = 30% of $40,000 = $12,000. Note that minimum margins are based on the closing market value each day.
A customer margin account shows: 100 shares of ABC @ $60 100 shares of DEF @ $75200 shares of PDQ @ $80 Debit = $13,000 SMA = $1,750 Reg. T = 50% What is the equity in the account? A $13,000 B $16,500 C $27,750 D $29,500
B $16,500 Long Market Value-Debit=Equity % $29,500 - $13,000 = $16,500 56% equity / LMV = equity %
A customer opens a margin account by purchasing: 100 shares ABC Common @ $50200 shares PDQ Common @ $80100 shares XYZ Common @ $20 The customer deposits the required margin amount. Subsequently, ABC stock increases to $60; PDQ to $100; and XYZ to $40. The new equity in the account is? A $11,500 B $18,500 C $20,000 D $30,000
B $18,500 Long Market Value-Debit=Equity % $23,000 - $11,500 = $11,500 50% After the increase in market value, the ABC position is worth $6,000; PDQ is worth $20,000; and XYZ is worth $4,000. The account now shows: Long Market Value-Debit=Equity % $30,000 - $11,500 = $18,500 62% *debit stays the same
On the same day in a margin account a customer: Buys 100 shares of ABC @ $52 Sells 1 ABC Jan 50 Call @ $5 The customer must deposit: A 0 B $2,100 C $3,140 D $4,700
B $2,100 To buy the stock in a margin account, Regulation T margin is 50% of $5,200 = $2,600. No margin is required to sell the call since it is covered by the long stock position. Since $500 of premiums are received from selling the call, the deposit is $2,600 - $500 = $2,100.
What are the initial and minimum maintenance margins for stock positions in long accounts? A 50 / 50 B 50 / 25 C 50 / 30 D 25 / 30
B 50 / 25 The initial margin requirement for long stock positions is set by Regulation T at 50%. The minimum maintenance requirement for long stock positions is set by the exchanges at 25%.
Regulation T sets the initial margin to purchase a marginable stock position at: A 25% of the purchase amount B 50% of the purchase amount C 75% of the purchase amount D 100% of the purchase amount
B 50% of the purchase amount
When must a customer sign and return a hypothecation agreement when opening a margin account? A At, or prior to, effecting the first transaction in the account B At, or prior to, settlement of the first transaction in the account C Within 10 business days of account opening D Within 15 calendar days of account opening
B At, or prior to, settlement of the first transaction in the account The rule for signing a hypothecation agreement when opening a margin account is interesting - it permits margin accounts to be opened over-the-phone or on line, if the firm chooses to do so! As long as the firm has the signed margin agreement by settlement of the first trade, all is good! So a potential client can be solicited to open a margin account; the representative can take a trade immediately at execute it; and the customer is sent the hypothecation agreement by overnight mail for signature and return with an enclosed overnight envelope. As long as the firm has the signed margin agreement back by settlement, which is T + 2, everything is in order!
Under MSRB rules, new accounts must be approved, in writing, by the: A Registered Representative B Municipal Securities Principal C Compliance Officer D Supervisory Analyst
B Municipal Securities Principal The Municipal Securities Principal (Series 53 license) is the person responsible for approving the opening of municipal new accounts. In addition, the MSRB permits the General Principal (Series 24 license) or the Branch Office Manager (Series 9/10 license) to approve new accounts. The Compliance Officer (Series 14 license) is a FINRA designation for the person responsible for overall compliance matters and overall supervision of accounts. This person typically resides in the home office. The Supervisory Analyst (Series 16 license) is a FINRA designation for the person who writes or approves research reports.
A customer has completed an account transfer instruction form at broker-dealer "B," instructing that his account be transferred from broker-dealer "A." Broker-dealer "A" has validated the positions, but has not yet completed the physical transfer. If the customer wishes to sell any of his securities positions prior to the physical transfer, which statement is TRUE? A The sell order must be placed with broker-dealer "A" B The sell order must be placed with broker-dealer "B" C The sell order cannot be placed until the physical transfer is completed D The sell order can be placed with either broker-dealer, but must be marked as a "short sale"
B The sell order must be placed with broker-dealer "B" Once a customer has completed an account transfer instruction at a "new" broker-dealer ("B"), this form is sent by that firm to the old broker-dealer ("A"). Broker-dealer "A" must verify the positions on the form within 1 business day and complete the transfer within another 3 business days. Upon receipt of the transfer form, carrying broker-dealer "A" must freeze the account and cancel all open orders. Any new orders must be placed through the new receiving broker-dealer "B."
In which instance will a power of attorney NOT be voided? A When the grantor of a non-durable power of attorney becomes mentally incapacitated B When the grantor of a durable power of attorney is incarcerated C When the grantor of a durable power of attorney dies D When the grantor of a non-durable power of attorney is adjudicated in a court of law to be incompetent and the court appoints a guardian
B When the grantor of a durable power of attorney is incarcerated An incarcerated person is someone who is in jail - and even though a person is in jail, he or she still has some legal rights. That individual can give a power of attorney to someone else to manage his or her financial affairs while in jail. A power of attorney, whether durable or not, becomes void upon the death of the grantor (the POA dies with the grantor!). If someone is mentally incapacitated, a durable power of attorney is not voided - that is the whole point of a durable power of attorney - if the grantor becomes mentally incapacitated, there is someone to take care of his or her affairs. If a court appoints a guardian over an individual because of incompetency, that individual has no more legal rights. Any power of attorney granted by that individual becomes void and the guardian assumes control.
All of the following statements are true regarding discretionary accounts EXCEPT: A the account must be approved by a general principal or branch office manager B an account can be opened once a customer has guaranteed that a written power of attorney has been placed in the mail C each order ticket must be marked "discretionary" D every order ticket must be approved promptly by a general principal or branch office manager
B an account can be opened once a customer has guaranteed that a written power of attorney has been placed in the mail Discretionary accounts must be approved by a general principal or branch office manager. The account can be opened only if a written power of attorney (first party trading authorization) is received from the customer. It is not sufficient for the customer to promise that it is "in the mail." Each order must be marked as discretionary and each order must be approved promptly by the manager after execution. There is no requirement for order approval prior to execution.
A registered representative enters an order for a customer, and later notices that the wrong account number has been entered on the order ticket. The proper procedure is the: A registered representative should cancel the order and enter a new order with the proper account number B branch office manager must approve a change of account number on the existing order ticket C floor broker handling the order should be informed of the change prior to execution of the order D Purchase and Sales department must contact the customer and request reconfirmation before the order ticket can be changed
B branch office manager must approve a change of account number on the existing order ticket Any alterations to an order ticket must be approved in writing by the branch office manager. It is not appropriate for the registered representative to cancel the order and enter a new one, since the order loses its priority if canceled.
To send trade confirmations to a person holding a power of attorney over a customer's account, written approval must be obtained from the: A person holding the power of attorney B customer C branch office manager D exchange where the security trades
B customer To send confirmations to someone designated by a customer, the customer must make the request in writing. This is a purely clerical procedure, so no approval of the principal is required, nor is there a "prudent man" test. The written request must come from the customer, not the recipient of the confirmation. Remember, the account belongs to the customer, and all actions taken are at the direction of the customer.
To open an options account, inquiry must be made into the customer's financial situation and needs in order to do all of the following EXCEPT to: A determine the restrictions, if any, to be placed in theOptions Agreement B determine whether the customer should receive anOptions Disclosure Document C determine if it is appropriate to open the account D make suitable customer recommendations
B determine whether the customer should receive an Options Disclosure Document The Options Disclosure Document and Options Agreement are mandatory parts of the option account opening procedure. Inquiry into the customer's financial situation is not made to determine whether the customer gets these. It is made to determine whether the account should be opened and what to recommend.
The "convenience signer" in a "Convenience Account" has the right to: A draw checks from the account for any purpose B draw checks from the account only for the benefit of the account owner C account assets upon the owner's death D trade the account on behalf of the owner
B draw checks from the account only for the benefit of the account owner A Convenience Account is a "newer" type of account registration that is designed for an elderly parent who has many adult children. The elderly parent needs help managing his or her finances and wants one of the children to do this. The Convenience Account allows the elderly parent to name a person to use the funds in the account for the parent's benefit only. The "convenience" signer is simply an agent who can write checks from the account. There is no right of survivorship, so upon the parent's death, the funds in the account go to the estate. The "convenience signer" has no ownership rights, so all of the adult children know that the "convenience" signer, who is their sibling, will not have access to the funds in the account upon the parent's death. The funds will then be distributed according to the parent's will. The "convenience signer" cannot trade the account unless the owner gives that person a third party trading authorization in writing.
A married couple has a joint account at your firm held as "JTWROS." The representative has been informed by both the husband and the wife that they are involved in a messy divorce battle. The wife has contacted the representative with a request to withdraw a large sum from the account. The representative should: A follow the wife's request and make the withdrawal B not follow the wife's request and contact the firm's legal department to put a withdrawal restriction on the account C liquidate the account and hold the proceeds in an escrow account until the divorce proceeding is adjudicated D transfer the account assets into an irrevocable trust for both the husband and wife
B not follow the wife's request and contact the firm's legal department to put a withdrawal restriction on the account The action to take in this circumstance is based on the fact that the registered representative "knows" that the couple is getting a divorce. The wife can't simply drain the account - this is a joint asset that will typically be split 50/50 in a divorce proceeding. Brokerage firm legal departments will place a withdrawal restriction on the account for a fixed time period (typically anywhere from 14 days to 28 days), pending written instructions from BOTH parties to the account. Therefore, BOTH parties will now have to agree to the withdrawal of any funds from the account. On the other hand, if the representative did not know about the pending divorce, then he or she would simply follow the wife's instructions. However, any checks coming out of the account would have to be made out to full account name - that is, the name of both the husband and wife. Therefore, to cash the check, both signatures would be required.
When a custodial account is opened under UTMA (Uniform Transfers to Minors Act), the assets in the account must be: A transferred to the new adult at legal age B transferred to the new adult at the age specified by the custodian C liquidated when the new adult reaches legal age and the proceeds given to the new adult D transferred into a Trust if no action is taken by the new adult at legal age
B transferred to the new adult at the age specified by the custodian The main difference between UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act) is that while the assets in an UGMA account transfer to the new adult at legal age, and an UTMA account, the custodian sets the transfer age (up to the maximum age set by that state - in most states, the maximum age is 21, a few have a maximum age of 25).
Long Margin Account Market Value: $60,000 Debit Balance: $15,000 If the customer buys $80,000 of listed stocks and sells $20,000 of listed stocks on the same day, the customer must deposit: A 0 B $10,000 C $15,000 D $30,000
C $15,000 SMA = (50% * 60000) - 15000 = 15000 must deposit = 60000 * 50% = 30000 can use SMA to help pay 30000 deposit so only need to deposit 15000 more dollars after (30-15) Margin is computed on net purchases for the day. The customer purchased $80,000 of stock and sold $20,000 of stock, for a net purchase of $60,000. To buy $60,000 of stock, the customer must deposit $30,000 of cash. Since the customer has $15,000 of SMA available, this can be used to buy $30,000 of stock. Thus, $15,000 more must be deposited to buy the other $30,000.
A customer sells short 100 shares of ABC stock at $30 as an initial transaction in a margin account. The customer must deposit: A $750 B $1,500 C $2,000 D $3,000
C $2,000 Regulation T initial margin to short stock is 50% of $3,000 = $1,500. However, since this is a new account, it must meet the minimum initial margin of $2,000 needed to open an account. Therefore, $2,000 must be deposited.
MISSED QUESTION! A customer is long 1,000 shares of fully paid XYZ stock, valued at $75 per share. The customer sells "short against the box" another 1,000 shares of XYZ. XYZ is listed on the New York Stock Exchange. The customer may borrow how much from his account? A 0 B $3,750 C $71,250 D $75,000
C $71,250 The margin in an arbitrage account is 5% minimum maintenance on the long side under FINRA rules. There is no Regulation T requirement, since the customer has no risk - his net position = "0." Since the market value of the securities is $75,000, the minimum margin is 5% = $3,750. The customer can borrow the remaining $71,250.
A customer buys 400 shares of ABC at $50 and sells short 200 shares of DEF @ $60. What is the minimum maintenance margin requirement? A $16,000 B $9,600 C $8,600 D $8,000
C $8,600 This question asks for minimum maintenance margin, which is 25% of the long market value of $20,000 = $5,000; and 30% of the short market value of $12,000 = $3,600. Thus, the total minimum maintenance margin is $5,000 + $3,600 = $8,600. (Note that if the question had asked for the initial margin, then the answer would be 50% of $20,000 LMV + 50% of $12,000 SMV.)
Customer fails to deliver must be bought in: A 5 business days after trade date B 5 business days after settlement date C 10 business days after trade date D 10 business days after settlement date
C 10 business days after trade date f a customer fails to deliver on a sale, this is not known until settlement date. As of settlement, the customer has 10 business days to deliver the stock, or the position will be bought in by the brokerage firm.
Under FINRA rules, if a member suspects that a senior citizen is being financially exploited, a temporary hold may be placed on disbursements from the account for up to: A 5 business days B 10 business days C 15 business days D 20 business days
C 15 business days FINRA permits member firms to place a temporary hold on disbursements from customer accounts if the firm suspects that the account owner is being financially exploited. The initial hold can be for up to 15 business days. In addition, if the member's review of the situation supports this, the member can extend the hold for another 10 business days.
A customer sells short 200 shares of ABC stock in a margin account. ABC declares a 5% stock dividend. How many shares must be purchased to close out the short position? A 190 B 200 C 210 D 250
C 210 200*5% = 10 200 + 10 = 210
Which statement is TRUE regarding margin on new issues? A New issues can be margined before the effective date B New issues can be margined as soon as the issue comes public C New issues can be margined 30 days after issuance D New issues can be margined 60 days after issuance
C New issues can be margined 30 days after issuance New issues are not marginable for 30 days after issuance. After that point, they are "seasoned" and are marginable if the securities are listed on an exchange or NASDAQ.
If an execution report shows that an erroneous execution has occurred, the responsibility for the trade rests with the: A customer B registered representative C brokerage firm executing the transaction D stock exchange on which the trade occurred
C brokerage firm executing the transaction If an erroneous execution occurs, it is the responsibility of the firm to correct the error.
The formula for equity in a combined margin account is: A long market value + short market value - credit balance - debit balance B long market value + short market value + credit balance - debit balance C long market value - short market value + credit balance - debit balance D long market value - short market value - credit balance + debit balance
C long market value - short market value + credit balance - debit balance LMV - debit = equity credit - SMV = equity
Under MSRB rules, a registered representative may perform a municipal securities transaction for a customer that he or she believes is unsuitable: A only with the approval of the MSRB B only with the approval of the principal C only at the specific direction of the customer D under no circumstances
C only at the specific direction of the customer Under an MSRB interpretation, if a customer directs a registered representative to do a trade that the representative believes is inappropriate, the representative must inform the customer of his or her objections; and if the customer still directs that the trade be performed, then the representative must execute the trade. We call this the MSRB "Do It!" rule.
Prior to opening an options account, all of the following steps must be taken EXCEPT: A completing the new account form B delivering the options disclosure document to the customer C receiving the signed options agreement from the customer D approving the first transaction in the account
C receiving the signed options agreement from the customer The customer has 15 days after the account is opened to sign and return the options agreement. All of the other steps must be completed prior to opening the account - the new account form must be completed; the customer must be delivered an Options Disclosure Document (ODD); and the first transaction (as well as the account itself) must be approved in writing by the Registered Options Principal
Use the following information to answer the next question: XYZ Jan 40 Call 5 5.25 XYZ Jan 40 Put 2 2.25 XYZ Jan 50 Call 1 1.25 XYZ Jan 50 Put 7 7.25 A customer who wishes to create a debit put spread must pay: (disregarding commissions) A 3.75 B 4.00 C 4.25 D 5.25
D 5.25 A Debit Put spread is created by purchasing the put with the higher strike price and selling the put with the lower strike price. Buy 1 XYZ Jan 50 Put Sell 1 XYZ Jan 40 Put The XYZ Jan 50 Put is bought at the ask price of 7.25; the XYZ Jan 40 Put is sold at the bid price of 2, creating a net debit of 5.25 or $525 to be paid for the spread position. In a debit spread, the debit is the maximum potential loss and is the deposit amount.
Under Regulation T, if no payment for a trade is received, the account is "frozen" for how many days? A 3 days B 5 days C 60 days D 90 days
D 90 days If payment is not received by the 4th business day after trade date, under extraordinary circumstances, a Regulation T extension may be requested from the exchange where the security was traded. If no payment is made, the unpaid position must be liquidated, and the account "frozen" (requiring payment in advance) for 90 days.
All of the following information is needed on a new account form EXCEPT: A Customer name B Customer address C Customer occupation D Customer education
D Customer education The customer's name and address are needed to open a new account, as is the customer's occupation, since if this person is employed by another brokerage firm, special procedures are required. There is no requirement to get the customer's education.
Which of the following information is NOT required to be verified with the customer every 36 months? A Customer investment objective B Customer address C Net worth D Date of birth
D Date of birth 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. The rule states that customer social security number and date of birth are not required to be verified to help protect the customer from potential identity theft.
MISSED QUESTION! All of the following procedures are required to open an account for an employee of another municipal securities firm EXCEPT: A Prior notice of the opening of the account must be given to the municipal employer B Duplicate trade confirmations must be sent to the municipal employer C Any instructions of the municipal employer must be followed D Duplicate account statements must be sent to the municipal employer
D Duplicate account statements must be sent to the municipal employer To open an account for an employee of another municipal securities firm, the MSRB requires that prior notice be given to the employing firm; and that duplicate confirmations of each trade be sent to the employer. There is no requirement to send duplicate statements to the employer. Also, any instructions of the employer regarding the account must be followed - for example, if the employer says "Don't open the account," then those instructions must be followed.
All of the following persons can approve the opening of an account under MSRB rules EXCEPT the: A Branch Office Manager B Municipal Securities Principal C General Principal D Financial and Operations Principal
D Financial and Operations Principal Under MSRB rules, new accounts are approved by either a resident Branch Office Manager (Series 9/10 license); a General Securities Principal (Series 24 license) or by an individual with the MSRB's full Municipal Principal (Series 53) license. The Financial and Operations Principal (Series 27 license) is the firm's accountant, and cannot approve the opening of customer accounts.
All of the following statements are true regarding Regulation T EXCEPT: A Regulation T requires payment for purchases within 4 business days B Regulation T applies to non-exempt securities only C Regulation T applies to both listed and unlisted securities D Regulation T sets both initial and maintenance margins
D Regulation T sets both initial and maintenance margins Regulation T requires payment promptly for purchases, but no later than "S + 2," which is 4 business days after trade date (regular way settlement of 2 days + 2 grace days). Regulation T only applies to non-exempt securities. It does not apply to exempt securities since it is part of the Securities Exchange Act of 1934, of which only the anti-fraud provisions apply to exempts. Regulation T margins apply to both listed and unlisted securities. The Federal Reserve only allows exchange listed and NASDAQ securities to be margined. OTCBB and Pink Sheet securities cannot be margined. Regulation T only sets initial margins; maintenance margins are set by FINRA.
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? A opening purchase B opening sale C closing purchase D closing sale
D closing sale If the Options Agreement is not signed and returned within 15 days, only closing transactions are allowed. Since the customer made an opening purchase (he bought the contract), this transaction is closed with a sale.
If a tenant in a joint account dies, the decedent's share is excluded from the taxable estate for accounts held as: A Joint Tenants with Rights of Survivorship only B Tenants in Common only C both Joint Tenants with Rights of Survivorship and Tenants in Common D neither Joint Tenants with Rights of Survivorship and Tenants in Common
D neither Joint Tenants with Rights of Survivorship and Tenants in Common If a joint account owned as "Tenancy In Common," then if one person dies, that person's share goes into his estate, and is subject to estate tax. Even though a "Joint Tenancy with Rights of Survivorship" gives each owner a legally undivided interest in an account, if one owner dies, the IRS assigns a portion of the account to that person and taxes it (nothing is so certain in life as death and taxes!) If the owners are married, then the unlimited marital exclusion stops the tax bill from hitting until the second spouse dies.
The "convenience signer" in a "Convenience Account" has: A the right to draw checks from the account for any purpose B the right to draw checks from the account only for the benefit of the account owner or the owner's children C the right to account assets upon the owner's death D no claim on account assets upon the owner's death
D no claim on account assets upon the owner's death A Convenience Account is a "newer" type of account registration that is designed for an elderly parent who has many adult children. The elderly parent needs help managing his or her finances and wants one of the children to do this. The Convenience Account allows the elderly parent to name a person to use the funds in the account for the parent's benefit only. The "convenience" signer is simply an agent who can write checks from the account. There is no right of survivorship, so upon the parent's death, the funds in the account go to the estate. The "convenience signer" has no ownership rights, so all of the adult children know that the "convenience" signer, who is their sibling, will not have access to the funds in the account upon the parent's death. The funds will then be distributed according to the parent's will.
A customer has been following the price movements of XYZ stock during this day's trading session. At 10 minutes prior to market close, the customer calls her representative and says: "Buy XYZ stock for me - get it at a good price - but make sure you get it." The customer hangs up and the representative calls the client back to ask how many shares she wants to buy, but she cannot be reached. The representative should: A enter a market order to buy the normal trading unit of 1 round lot of XYZ stock B enter a marketable limit order at the current market price to buy the normal trading unit of 1 round lot of XYZ stock C enter a market on close (MOC) order using the same order size as the most recent order placed by that customer for another equity security D not place the order
D not place the order The client never told the representative how many shares to buy. The question does not tell us if the representative has been given a power of attorney by the client, so we cannot assume this. Nothing can be done until the client tells the representative how many shares to buy!
Unrealized gains and losses on securities positions held by a customer at a brokerage firm would be found on the: A Form 1099 B B Form 1099 DIV C trade confirmation D periodic account statement
D periodic account statement Customer account statements detail each position held with the acquisition cost, current market value, and appreciation or depreciation on that position. The trade confirm only shows the price at which the securities were purchased or sold. The Form 1099 B (as in "Basis") reports to the IRS and to the client, positions that have been closed by trading, reporting the cost basis and sale proceeds on the form (but any gain or loss is calculated on that client's tax return using this information). The Form 1099 DIV reports dividends and interest received on securities positions held to both the IRS and the client..
A married couple opens a joint margin account. The brokerage firm will send the Internal Revenue Service Form 1099 (Report of Interest and Dividends Earned) to the: A husband only B wife only C husband on one report; and the wife on another report D person whose social security number was given on the account form
D person whose social security number was given on the account form Form 1099s (Reports of Interest and Dividends Earned) are sent to the customer whose social security number appears on the account. If it is a joint account, then the parties to the account must decide which 1 person's social security number will be used. The Form 1099 is sent to that 1 party in the account. It is up to the joint owners to allocate the proper share of income as shown on that report onto their personal tax returns.
Which of the following accounts can be opened as margin accounts? I Investment Adviser account II Custodial account III Guardian account IV Executor for an Estate account
I Investment Adviser account As a general rule, fiduciary accounts cannot be opened as margin accounts, unless the authorizing document specifically permits this. Custodial accounts, Guardian accounts, and Executor accounts are all fiduciary accounts. Investment adviser accounts are essentially regular customer accounts with a Third Party Trading Authorization given to the Investment Adviser. Customer accounts can be opened as either cash or margin accounts (as long as the proper documentation is completed).
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
I and II 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.
If a registered representative leaves his or her brokerage firm for another broker-dealer, the customer accounts of the departing registered representative: I are considered to be the property of the carrying broker-dealer II are considered to be the property of the registered representative III will be distributed to other registered representatives at the carrying firm IV will be closed and transferred to any new broker-dealer with whom the registered representative affiliates
I and III Customer accounts are the property of the firm, not the registered representative. If a registered representative leaves, his or her accounts will be distributed to other registered representatives at the carrying firm. Of course, these customers may choose on their own to "follow" the departing registered representative to any new firm.
A customer that wishes to open a portfolio margin account must: I receive a copy of the risk disclosure statement describing the risks and nature of portfolio margining at, or prior to, the initial transaction in a portfolio margin account II receive a copy of the risk disclosure statement describing the risks and nature of portfolio margining, within 15 days of opening a portfolio margin account III sign an acknowledgment attesting that he or she has read and understands the disclosure document at, or prior to, the initial transaction in a portfolio margin account IV sign an acknowledgment attesting that he or she has read and understands the disclosure document within 15 days of opening a portfolio margin account
I and III 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. Note that this is a more stringent requirement than the procedure for opening a regular options account, where the Options Agreement must be signed and returned within 15 days of account opening.
An employee of a CBOE member firm wishes to open an options account at another CBOE member firm. Which of the following statements are TRUE? I Prior written approval must be obtained from the employer member II Prior written approval must be obtained from the CBOE III Duplicate confirmations must be sent to the employer member IV Duplicate confirmations must be sent to the CBOE
I and III If an employee of a CBOE member firm wishes to open an options account at another CBOE member firm, then prior written approval must be obtained from the employer member; and duplicate confirmations must be sent to the employer member.
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
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 pattern day trader is defined as a person who: I effects a minimum of 4 day trades II effects a minimum of 10 day trades III in any given business day IV in 5 business days
I and IV A "pattern day trader" is defined as a person who effects at least 4 day trades in a 5 business day period. To open a day trading account, the customer must be qualified with a very detailed suitability determination; must receive a risk disclosure document; and must post a higher minimum margin.
Which of the following are types of fiduciary accounts? I Custodial Account II Partnership Account III Joint Account IV Trust Account
I and IV Both Trust accounts and Custodial accounts are "fiduciary accounts," where a third party is designated to manage the account in the best interests of the account owner. Partnership accounts and joint accounts are directly managed by an owner of the account, and thus are not fiduciary accounts.
Which of the following statements are TRUE regarding the sale of a long position in a restricted long margin account? I 50% of the proceeds of the sale are credited to SMA II 100% of the proceeds of the sale are credited to SMA III There is a 0% retention requirement of the sale for a restricted account IV There is a 50% retention requirement of the sale for a restricted account
I and IV If stock is sold out of a restricted account, 50% of the proceeds are credited to SMA and can be borrowed out. The other 50% must be retained in the account (the retention requirement).
Recommendations by a registered representative to a customer about uncovered call writing 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 this strategy
I, II, III 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.
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
I, II, III, IV At all times the registered representative must keep the following records relating to each existing customer account under FINRA rules: Copy of new account form information; Chronological record of trades; Current account statement showing securities positions; and Physical location of securities positions held.
In order to adequately assess the suitability of a recommendation to a customer that is a senior citizen, the member should make reasonable efforts to obtain information about the customer's: I Age II Life stage III Liquidity needs IV Tolerance for risk
I, II, III, IV In its suitability rule, FINRA does not explicitly address the needs of senior citizens. However, in a separate notice to members, FINRA has stated that a customer's age and life stage are both important factors when performing a suitability determination for a senior citizen. It states that as investors age, their investment time horizons, goals, risk tolerance and tax status often change, and that liquidity takes on added importance.
If an investor wishes to open a margin account, which of the following paperwork is customarily completed? I New Account Form II Hypothecation Agreement III Loan Consent Agreement IV Credit Agreement
I, II, III, IV To open any account, the new account form must be completed. In addition, if the account is a margin account, then the customer must sign a hypothecation agreement (where the customer pledges the securities to the broker in return for the margin loan); the customer is asked to sign a loan consent agreement, allowing the broker to lend out the customer's securities for short selling by other customers of the firm; and the customer must sign a credit disclosure agreement, which explains how the loan balance is computed and how interest will be charged on the loan.
A customer account shows: ABC Short Market Value: $30,000 Credit: $60,000 SMA: $15,000 Which of the following affect SMA in this account? I ABC short market value falling to $25,000 II ABC short market value rising to $35,000 III An additional short sale of ABC shares in the account IV A covering purchase of shares of ABC in the account
I, III, IV An increase in market value does not affect SMA in a short account - which is Choice II. SMA stays locked as the equity in the account declines in a rising market. Decreases in market value (Choice I) add to equity and hence add to available SMA. An additional short sale in the account (Choice III) uses SMA, while a covering purchase in the account (Choice IV) increases SMA. This is the exact opposite of what happens in a long margin account, where a long sale increases SMA, while an additional purchase uses (decreases) SMA.
Which of the following are affected when securities are sold in a restricted margin account? I Long Market Value II Equity III SMA IV Debit Balance
I, III, IV If securities are sold in a restricted margin account (one that is below 50% margin), the long market value must decline. The proceeds of the sale are used to reduce the debit balance, therefore the debit balance will decrease. When securities are sold from a restricted account, 50% of the proceeds may be withdrawn. This is accomplished by crediting 50% of the proceeds to SMA. Thus, this amount can be borrowed. The only choice that does not change is Equity - this stays the same. Equity will be affected only if the market value rises or falls - or if cash is paid into, or borrowed from, the account.
A customer opens a new margin account by purchasing 1,000 shares of ABC stock at $20, and deposits the required margin. If the market value increases to $50, which statements are TRUE? I The equity in the account is $30,000 II The equity in the account is $40,000 III The SMA in the account is $15,000 IV The SMA in the account is $30,000
II and III The SMA can be computed in either of 2 ways; it is 50% of the market value increase of $30,000 = $15,000 of SMA (that is, 1/2 of the market value increase can be borrowed); or the total borrowing permitted is 1/2 of the current market value = 1/2 of $50,000 = $25,000. Since the debit is $10,000, another $15,000 may be borrowed.
To make a suitable recommendation, the registered representative must have sufficient knowledge of the customer's financial background. Regarding recommendations to a customer, which of the following statements are TRUE under MSRB rules? I If the customer refuses to disclose sufficient financial information, recommendations are still allowed II If the customer refuses to disclose sufficient financial information, recommendations are not permitted III If the customer insists upon performing a trade that is deemed to be unsuitable, the registered representative should follow the customer's instructions IV If the customer insists upon performing a trade that is deemed to be unsuitable, the registered representative must refuse the trade
II and III The registered representative should inquire as to the customer's "financial background" under MSRB rules, asking information such as income and net worth. The customer may refuse to provide this information, stating that it is an invasion of privacy. The account can still be opened, however when the customer fails to provide sufficient personal information on his financial status or investment objective, no recommendations can be made. If the customer wishes to execute an unsuitable trade, the registered representative should note this and mark the order ticket as "unsolicited" and execute the order. The registered representative is obligated to do what the customer instructs.
Under the Uniform Gifts To Minors Act, which of the following statements are TRUE? I Only adults related to the minor may open a custodial account II Any adult can open a custodial account for a minor III Any gift donated into the account is revocable IV Any gift donated into the account is irrevocable
II and IV Any adult can open a custodial account for a minor - the adult does not have to be related in any way to the minor. Any gift is irrevocable - once given to the minor, the donor can not take it back
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
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.
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
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.
As the initial transaction in a new margin account, a customer buys 1,000 shares of XYZ stock at $30. The market value increases to $45. Which statements are TRUE? I Equity increases by $15,000 II Equity increases by $30,000 III SMA increases by $7,500 IV SMA increases by $15,000
Long Market Value -Debit = Equity% SMA $30,000 - $15,000 = $15,000 50% 0 After the increase in market value, the stock is worth $45,000. The account now shows: Long Market Value - Debit = Equity% SMA $45,000 - $15,000 = $30,000 66% $7,500 SMA = (.5 * new LMV) - debit The SMA can be computed in either of 2 ways. The additional amount that can be borrowed is 1/2 of the market value increase. 1/2 of $15,000 = $7,500. Or, 1/2 of the current market value can be borrowed in total. 1/2 of $45,000 = $22,500. Since the existing debit is $15,000, an additional $7,500 can be borrowed.
