SIE UNIT 19 Settlement

A trade of an equity option settles in ( ) days, while an exercise of an equity option must be completed in ( ) days. A) 1,2 B) 2,2 C) 1,1 D) 2,1

A) 1,2 An option trade settles next business day (T+1); the exercise of an equity option settles in two days from exercise.

Some issuers issue securities in electronic form, while some securities have been issued in physical form. Which of the following statements are true in relation to electronic or physical form? A) All U.S. government securities are issued in book entry form B) Corporate stocks can only exist in electronic form C) All U.S. government securities are issued with physical paper certificates D) Corporate bonds have always been issued in electronic form

A) All U.S. government securities are issued in book entry form

Ron buys 522 shares of Narcissus Inc., common stock in a cash account on Monday, March 19. He deposits cash in the account sufficient to cover the trade on March 20. How soon would he be able to withdraw those shares? A) Wednesday, March 21 B) Tuesday, March 20 C) Thursday, March 22 D) Friday, March 23

A) Wednesday, March 21 This is a regular way settlement of a corporate security (T+2). The trade is fully paid for so the customer may request the shares be moved on or after settlement on Wednesday, March 21.

A term indicating that a security is tradable and all of the requirements of the contract to sell the security have been met and the security is ready to be transferred is A) good delivery. B) buyer's options. C) seller's option. D) regular way settlement.

A) good delivery.

Nate McCann is closing on a house tomorrow and wants to sell some securities to meet closing costs. He wants to know how soon he could get the money and what he needs to do. You should tell A) if he does the trade today for cash settlement he could settle today. B) if he does the trade today he won't be able to get the money for 3 business days because regular way settlement is T + 3. C) if he does the trade today for cash settlement he would settle tomorrow. D) if he does the trade today he won't be able to get the money for 2 business days because regular way settlement is T + 2.

A) if he does the trade today for cash settlement he could settle today. Cash settlement is same day settlement.

Which of the following settlement arrangements has trade and settlement occurring on the same day? A) Buyer's option B) Seller's option C) Regular way settlement D) Cash settlement

D) Cash settlement If both parties to the trade agree, and if the buyer has the cash on hand and the seller has the securities on hand, trade and settlement can take place on the same day. This is known as cash settlement.

Your client is buying municipal bonds and wants to know when payment is due. You should tell him A) trade date plus 3 business days. B) trade date plus 1 business day. C) trade date plus 2 business days. D) trade date.

C) trade date plus 2 business days.

Your client is buying municipal bonds and wants to know when payment is due. You should tell him A) trade date plus 3 business days. B) trade date. C) trade date plus 2 business days. D) trade date plus 1 business day.

C) trade date plus 2 business days.

A stock trade took place on Tuesday, July 2. When would regular way settlement normally take place? A) Monday, July 8 B) Wednesday, July 3 C) Tuesday, July 2 D) Friday, July 5

D) Friday, July 5 Regular way settlement for a stock trade is T + 2 (trade date plus two business days). This would normally make settlement for this transaction Thursday July 4, but because July 4 is not a business day (national holiday), regular way settlement would have to be Friday, July 5.

On Friday, July 1 your customer purchased 10 3% T-bonds maturing in 15 years. This trade will settle on A) July 6 B) July 3 C) July 2 D) July 5

D) July 5 Treasuries settle T+1 (next business day after the trade). A trade on Friday would normally settle on Monday, but this Monday is a holiday (Independence Day). Remember the July 4 and December 25 are not settlement days.

A signature endorsement on a stock certificate would not be required for good delivery if the shares were A) are in custodial name. B) held in safe keeping. C) in trust name. D) held in street name.

D) held in street name. Shares held in street name are normally registered to the broker-dealer, who hold them on behalf of the client. As these shares are likely only in electronic form no signature is required to transfer them.

Good delivery of a stock certificate requires all of the following except A) proper endorsement by all owners. B) the correct number of shares are delivered. C) certificates in good condition. D) proper signatures of a firm principal on the certificate.

D) proper signatures of a firm principal on the certificate. The broker-dealer does not sign the certificate. All the rest of these are requirements.

Josie Reese, one of your clients with an option account, calls and asks you to remind her when she is required to settle if she bought a call today. You would tell her A) trade date. B) trade date plus 2 business days. C) trade date plus 3 business days. D) trade date plus 1 business day.

D) trade date plus 1 business day. Options settle the next business day (T + 1). Regular way settlement is T + 2 for everything else except treasuries and money market securities.

Regular way settlement for common stock is A) trade date plus 1 business day. B) trade date plus 3 business days. C) trade date. D) trade date plus 2 business days.

D) trade date plus 2 business days.

James Thomas calls and is interested in buying some GNMA certificates and wants to know when payment will be due. You should tell him A) trade date plus 1 business day. B) trade date. C) trade date plus 3 business days. D) trade date plus 2 business days.

D) trade date plus 2 business days. Regular way settlement is T + 2 for everything except treasuries, money market securities, and options.

Your client, Alice Tate, lives in Irvine, California, and wishes to purchase some bonds that would be both state- and federal-tax free for her. You recommend some school district bonds from Costa Mesa. She then asks when she would need to pay for the bonds. You should tell her A) trade date. B) trade date plus 3 business days. C) trade date plus 1 business day. D) trade date plus 2 business days.

D) trade date plus 2 business days. Regular way settlement is T + 2 for everything except treasuries, money market securities, and options.

Isaac James has some call options in his account that he would like to exercise. He wants to know when the resulting purchase of the stock would settle. You would tell him A) trade date plus 1 business day. B) trade date. C) trade date plus 3 business days. D) trade date plus 2 business days.

D) trade date plus 2 business days. When purchasing or selling an option, the settlement is the next business day. When an option is exercised the resulting stock transaction is 2 business days following exercise.

Your customer has purchased $10,000 in U. S. Treasury bonds. These securities A) are required to be delivered in the form of physical paper certificates. B) can be transferred in either physical or book-entry form in accordance with the purchasers request. C) will have evidence of ownership recorded in book-entry form. D) cannot be delivered in physical certificates because they exceed the amount for paper certificate delivery.

C) will have evidence of ownership recorded in book-entry form. All U.S. government securities no matter what the denomination or amount are delivered, transferred, and have ownership recorded in book-entry form.

Nate McCann is closing on a house tomorrow and wants to sell some securities to meet closing costs. He wants to know how soon he could get the money and what he needs to do. You should tell A) if he does the trade today for cash settlement he would settle tomorrow. B) if he does the trade today for cash settlement he could settle today. C) if he does the trade today he won't be able to get the money for 3 business days because regular way settlement is T + 3. D) if he does the trade today he won't be able to get the money for 2 business days because regular way settlement is T + 2.

A) if he does the trade today for cash settlement he would settle tomorrow.

A cash settlement trade settles A) the same day as the trade. B) the next day. C) in two business days. D) the regular way, but no margin borrowing is permitted.

A) the same day as the trade.

Josie Reese, one of your clients with an option account, calls and asks you to remind her when she is required to settle if she bought a call today. You would tell her A) trade date plus 1 business day. B) trade date plus 3 business days. C) trade date plus 2 business days. D) trade date.

A) trade date plus 1 business day. Options settle the next business day (T + 1). Regular way settlement is T + 2 for everything else except treasuries and money market securities.

Your client is purchasing XYZ corporate bonds and wants to know when regular way settlement is. You should tell her A) trade date plus 2 business days. B) trade date plus 3 business days. C) trade date plus 1 business day. D) trade date.

A) trade date plus 2 business days.

On Tuesday, December 10 your customer Bought 5 OEX (S&P 100 Index) 230 March calls at four. On Tuesday, March 10 the calls are in-the-money and your customer issues exercise instructions. On what days did the trade and the exercise settle? A) December 12 and March 11 B) December 11 and March 11 C) December 11 and March 12 D) December 12 and March 12

B) December 11 and March 11 All option trades settle next business days. The exercise of an Index option settles the next business day.

A corporate stock is purchased on Friday, April 2, regular way. When will the trade settle? A) Friday, April 2 B) Tuesday, April 6 C) Monday, April 5 D) Wednesday, April 7

B) Tuesday, April 6 T+2 corporate stock

Your customer buys 300 shares of Steel Tools common stock on Tuesday and will be an owner of record as of the close of business that same Tuesday. This must be A) a mutual fund. B) a cash settlement trade. C) not possible. D) a quick settlement trade.0

B) a cash settlement trade. This is called a cash settlement trade. It states that the trade is a common stock, so not a mutual fund. There is no formal quick settlement trade.

Shares held in electronic form at a clearing house under a broker-dealers account are A) are in custodial name. B) held in street name. C) in trust name. D) held in safe keeping.

B) held in street name. Shares held in street name are normally registered to the broker-dealer, who hold them on behalf of the client at the broker-dealers clearing firm.

Your client, Jacob Riley, wants to purchase Treasury bonds and asks when he would need to pay for the bonds. You would tell him that regular way settlement for U.S. government bonds is A) trade date plus 2 business days. B) trade date plus 1 business day. C) trade date. D) trade date plus 3 business days.

B) trade date plus 1 business day.

Regular way settlement for common stock is A) trade date plus 3 business days. B) trade date plus 2 business days. C) trade date. D) trade date plus 1 business day.

B) trade date plus 2 business days. Regular way settlement is T + 2 for everything except treasuries, money market securities, and options.

Your client, Teresa Jenson, calls and wants to purchase T-bills and wants to know when payment is due. You should tell her A) trade date plus 3 business days. B) trade date. C) trade date plus 1 business day. D) trade date plus 2 business days.

C) trade date plus 1 business day.

When securities are bought and sold, ownership changes hands between the buyer and the seller A) at an agreed time between both parties. B) on the transaction date. C) on the settlement date of the transaction. D) upon delivery of the trade confirmation.

C) on the settlement date of the transaction.

A document that substitutes for the owners signatures on the back of a stock or bond certificate is called a A) signature substitution letter. B) certificate power. C) stock or bond power. D) security substitution letter.

C) stock or bond power. A stock (or bond) power signed by the owners may be used in lieu of the customer's signature on the back of the certificate.