UNIT 18
Why is locate requirement part of sell to open?
If you are selling to open, you do not own the shares, which means you are shorting. The dealer must locate the shares you would like to borrow.)
Do you own a security if you sell a security to open?
NO
When selling to open do you own the shares?
NO (could be shorting)
A customer who is short against the box may close the position by all the following except A) depositing the fair market value of the shorted stock into his account. B) covering the short with the stock in his account. C) combining purchases of stock with stock already owned by the customer. D) purchasing twice the stock in the open market.
A) depositing the fair market value of the shorted stock into his account. (A customer who is short against the box owns the stock he shorted. As a result, the customer may use his owned stock to cover the short position, buy back the short position in the open market, or any combination of the two. The customer cannot simply deposit funds into his account.)
Must locate and secure shares before executing short sale
Regulation SHO
A closing transaction can be A) a sell only. B) either a buy or a sell. C) a short sale. D) a buy only.
B) either a buy or a sell. (The closing transaction will always be the opposite of the opening one—buy to open, sell to close or sell to open, buy to close)
Ownership of a security indicates that one is A) long the position and bearish. B) long the position and bullish. C) short the position and bullish. D) short the position and bearish.
B) long the position and bullish.
When a customer owns the shares she wants to sell but borrows some additional shares, sells the borrowed shares, and then covers the short position with shares already owned.
Short against the box
Choices a registered representative is able to make for a customer in a nondiscretionary account
The time of execution of the trade and At what price to execute the trade
True or False: Order tickets should always be marked solicited or unsolicited.
True
True or false: wrap accounts are considered advisory accounts
True (must meet investment advisors act of 1940)
Firms provide a GROUP of services like asset allocation, portfolio mgt., and admin. for a single fee
Wrap accounts
3 elements of discretionary trade
action, amount, asset
The fee on a wrap account is a % of AUM
assets under management
Are short sellers bullish or bearish?
bearish
Is owning a stock bullish or bearish?
bullish
The amount paid for a position
cost basis
Adding discretion to account requires written authorization from ? and ?
customer and firm principal
The 3 A's make an account...
discretionary
If the rep. chooses ONE OR MORE of the 3 A's (action, amount, asset), then it is a...
discretionary trade
In a ? account, an RR could decide the time of trade and the price (anything NOT 3 A's)
non-discretionary
The closing transaction will always be ? of the opening one
opposite
When a client owns a stock and wants to get out of that position, he should ? the stock in a closing transaction.
sell
What does selling long mean?
selling a position you own
Is sell to open, buy to close a short or long transaction?
short (borrow securities sell and then buy back at lower price)
For a trade to be unsolicited the client would need to specifically identify the bonds they wanted to purchase instead the registered representative is the one who recommended these bonds making the trade ?
solicited
? must be determined on solicited trades.
suitability
Buying to open can cause a loss of...
the amount invested
What happens in an unsolicited trade?
the client specifically identifies bonds they want
What happens in a solicited trade?
the registered representative is the one who recommended the bonds (suitability must be determined)
Solicited or unsolicited: client places trade that has not been suggested by BD or rep
unsolicited
Meeting the location requirements and the borrowing of securities when a customer wants to sell short is done by A) the purchaser of the securities being sold short. B) the broker-dealer on behalf of the short-selling customer. C) the customer who wants to sell short. D) the customer or entity that the shares will be borrowed from.
B) the broker-dealer on behalf of the short-selling customer.
A client calls a registered representative and states that they live in New York City and that they are looking for a bond that would be triple tax free in New York. The registered representative tells the client that his firm has some bonds in inventory that are from the Albany, NY, school district that would be triple tax free for the client. Which of the following would be the registered representative's best course of action? A) Determine suitability prior to the trade and mark the trade unsolicited. B) No suitability determination is required becasue the bonds will be tax free for the client and mark the trade solicited. C) Determine suitability prior to placing the trade and mark the trade solicited. D) No suitability determination is required because these bonds will be tax free for the client and mark the trade unsolicited.
C) Determine suitability prior to placing the trade and mark the trade solicited.
Which of the following best describe a wrap account? I. The firm offering the account would need to be registered as both a broker-dealer and an investment advisor II. The account fee covers both transactions and advice III. The wrap fee for the account covers only where the firm acts as a broker or acts as a dealer IV. The firm may only be registered as a broker or dealer A) I and II B) III and IV C) II and III D) I and IV
A) I and II (Wrap account: The fee covers both the advice and any transaction; the firm must be registered as both a broker-dealer and an investment advisor.)
Which of the following transactions has the most risk? A) Selling short B) Short against the box C) Selling to close D) Buying to open
A) Selling short (has unlimited potential loss; borrowing)
Which of the following choices would a registered representative be able to make for a customer in a nondiscretionary account? I. The time of execution of the trade II. What security to buy III. How much of the security to buy IV. At what price to execute the trade A) I and II B) I and IV C) II and III D) II and IV
B) I and IV
Selling long is equivalent to which of the following? A) Selling to open B) Selling to close C) Selling to open then buying to close D) Selling short
B) Selling to close (When a customer owns a position and then sells that position that is referred to as selling long or selling to close.)
Which of the following transactions has the least risk? A) Buying to open B) Short against the box C) Selling to open D) Selling short
B) Short against the box
A registered representative is explaining discretionary and nondiscretionary accounts to a customer. Only one of the following statements is accurate and can be made by the registered representative. Which is it? A) If I decide that the account should be a discretionary one you will no longer be able to enter orders yourself. B) I decide if the account should be set up as discretionary or nondiscretionary, but must do so in your best interest. C) In a discretionary account you will have the opportunity to approve any order I want to enter before I enter it. D) In a nondiscretionary account no order can be entered without your prior approval.
D) In a nondiscretionary account no order can be entered without your prior approval.
The locate requirement is an element of which of the following transactions? A) Sell to close B) Buy to open C) Buy to close D) Sell to open
D) Sell to open (When selling short (selling to open), shares must be borrowed from the dealer. The dealer finding those shares that can be loaned to the seller is part of the locate requirement)
Discretionary or non-discretionary: customer grants trading authority to a RR to place trades in their account without pre-authorization from the customer
Discretionary
True or False: you need a customer's approval to enter an order in a non-discretionary account
False (non-discretionary= no permission)
