Customer accounts module questions
The Regulation T initial margin requirement for long stock positions is: A. 25% B. 30% C. 50% D. 100%
50%
Regulation T sets the initial margin to sell short a marginable stock position at: A. 25% of the sale amount B. 50% of the sale amount C. 75% of the sale amount D. 100% of the sale amount
50% of the sale amount
What are the initial and minimum maintenance margins for stock positions in short accounts? A. 50 / 50 B. 50 / 25 C. 50 / 30 D. 25 / 30
50/30
What is the best way to ensure that a broker-dealer has an effective AML program? A. By providing AML training to the representatives in each office B. By making sure that SAR and CTR reports are filed in a timely fashion C. By following Know Your Customer procedures that are risk-based D. By arranging for another member firm to review that firm's AML procedures
By following Know Your Customer procedures that are risk-based The FINRA rule on creating a firm's AML (Anti-Money Laundering) policy is quite generic, however their interpretations state that the AML Policy should include "KYC" (Know Your Customer) procedures that permit the firm to make a reasonable risk-based determination as to its customers, its customers' sources of income, and expected activity. Also part of the AML procedures are the requirement for an annual outside independent audit; and for annual AML training. However, the key part of the interpretation is "KYC" - and this is the best answer.
Where would you find the names of the persons authorized to trade a corporate account? A. Corporate charter B. Corporate resolution C. Proof of domicile D. New account form
Corporate resolution
A customer wishes to give a gift of securities to her nephew under the Uniform Gifts To Minors Act. Which of the following statements is TRUE? A. The account cannot be opened because only parents are permitted to be custodians B. The account can be opened only with the written permission of the minor C. The securities can only be donated if they are included on that state's "legal list" D. The account can be opened without further documentation
The account can be opened without further documentation
A new customer has come into your firm to open an account. He tells you that he is 21 years old, recently graduated from college and that he is looking for a job. He is contacting you because he recently inherited $250,000 and wants to invest it for growth and income. When you are completing the new account information, you ask him for his street address and he tells you that he was just evicted from his apartment and has moved into a long-stay hotel until he finds a new place to live. Which statement is BEST about this situation? A. The address to be used for Customer Identification purposes is the client's last known residence address B. The address to be used for Customer Identification purposes is the address of a close relative C. The address to be used for Customer Identification purposes is a P.O. Box where he is receiving mail D. The account can only be opened as a cash account without any street address being required
The address to be used for Customer Identification purposes is the address of a close relative
All of the following procedures are required for discretionary accounts EXCEPT: A. every order ticket initiated by the registered representative must be marked "discretionary" B. every discretionary order ticket must be approved by the manager or principal C. the customer must be contacted before each discretionary trade is executed D. a written power of attorney must be obtained from the customer before discretionary trades are effected
The customer must be contacted before each discretionary trade is executed
To open a new account for a trust, which statement is TRUE? A. The tax identification number of the trust must be obtained B. The tax identification number of the trustee must be obtained C. The tax identification of the trust beneficiary must be obtained D. There is no requirement to obtain a tax identification number when opening a trust account
The tax identification number of the trust must be obtained Trusts are legal entities that are taxed under the Internal Revenue Code, thus they have their own tax identification numbers.
Which statement about required signatures when opening an account is FALSE? A. To open an account, joint tenants with rights of survivorship, the signature of each tenant is required B. To open an account, joint tenants in common, the signature of each tenant is required C. To open a general partnership account, the signature of each partner is required D. To open a community property account, the signature of each participant is required
To open a general partnership account, the signature of each partner is required
A customer is long 1,000 shares of ABC stock at $60 in a margin account. The minimum maintenance margin requirement is: A. $15,000 B. $18,000 C. $30,000 D. $60,000
$15,000 The minimum maintenance margin requirement for long stock positions is 25% of the current market value = 25% of $60,000 = $15,000.
A customer buys 100 shares of ABC stock at $70 as an initial transaction in a margin account. At the end of the day, the stock is worth $80 per share. The customer must deposit: A. $2,000 B. $2,500 C. $3,500 D. $4,000
$3,500 Initial margin to buys stocks is 50% of the market value at the time of purchase. 50% of $7,000 is $3,500. The subsequent increase in value that day cannot be used to reduce the deposit amount.
A customer sells short 1,000 shares of ABC stock at $4 in a margin account. The customer must deposit: A. $2,000 B. $2,500 C. $4,000 D. $5,000
$4,000 Under the "cheap stock rule," if a customer wishes to short a stock under $5 a share, he or she must put up the greater of 100% or $2.50 per share. 100% of $4 per share x 1,000 shares = $4,000. $2.50 x 1,000 shares = $2,500. The greater amount is $4,000.
In an existing margin account, a customer sells short 100 shares of ABC at $90. At the end of the day, the stock rises to $100 per share. What is the margin requirement? A. $2,000 B. $3,500 C. $4,500 D. $5,500
$4,500 To short stock, Regulation T requires the customer to deposit 50% of the sale amount. 50% of $9,000 = $4,500. The fact that the stock rises to $100 at the end of the day, giving the customer a $1,000 loss, has nothing to do with the margin call amount.
Which of the following verbal orders can be accepted from a customer without further documentation? A. "Buy 100 shares of ABC stock sometime today" B. "Invest $20,000 in bank stocks" C. "Increase my portfolio position in ABC" D. "Buy 200 shares of an auto stock"
"Buy 100 shares of ABC stock sometime today" An order is not considered to be "discretionary" if the broker is limited to choosing the price or time of execution. If the broker chooses any other items, such as the security to be purchased, or the number of shares of a security to be purchased, then a written power of attorney giving discretionary power must be obtained from the customer.
Which of the following parties of an account can give trading authorization to another party? A. A second party can give trading authorization to a first party B. A first party can give trading authorization to a second party C. A third party can give trading authorization to a second party D. A first party can give trading authorization to a third party
A second party can give trading authorization to a first party The parties to an account are: First Party: Brokerage Firm Second Party: Customer Third Party: Someone Other Than the Broker or Customer Since only Second Parties can open accounts, only a Second Party can give trading authorization to either a First Party (a discretionary account) or to a Third Party (a Third Party trading authorization).
Which of the following transactions are subject to Regulation T? A. Customer borrowing from a bank using securities as collateral B. Broker borrowing from a bank using securities as collateral C. Customer borrowing from a broker using securities as collateral D. Broker borrowing from another broker using securities as collateral
Customer borrowing from a broker using securities as collateral Regulation T of the Federal Reserve Board controls the extension of credit on securities from broker to customer. Regulation U of the Federal Reserve Board controls the extension of credit on securities by banks.
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
Duplicate account statements must be sent to the municipal employer
If an employee of a FINRA member firm wishes to open up an account with another FINRA member firm, all of the following statements are true EXCEPT: A. The employee must get written consent of his or her employing member firm to open the account B. The executing member firm must be notified, in writing, of the fact that the individual opening the account is associated with another member firm C. Duplicate confirmations and/or statements must be sent to the employing member, if requested in writing by the employer D. Duplicate confirmations and/or statements must be sent to FINRA, if requested in writing
Duplicate confirmations and/or statements must be sent to FINRA, if requested in writing
The regulator that is responsible for enforcing the Bank Secrecy Act of 1970 is: A. SEC B. FinCEN C. FINRA D. FDIC
FinCEN
A new customer opens an account and buys a variable annuity contract, investing $20,000. 90 days later, the client calls and tells the representative that he wants to surrender the contract. The representative explains that this is not a good idea, since there will be a high surrender fee of 8% imposed. The client tells the representative that he does not care about the surrender fee and that he wants the net proceeds wired to an account at a bank in another country. What should the representative do? A. Follow the customer's instructions B. Have the firm file a CTR with FinCEN C. Have the firm file a SAR with FinCEN D. Refuse the customer's request
Have the firm file a SAR with FinCEN
What is the term for a pledge of securities as collateral for a loan? A. Intermediation B. Disintermediation C. Hypothecation D. Rehypothecation
Hypothecation When a customer signs a margin agreement, he or she pledges (hypothecates) the securities in the account as collateral for the margin loan. If the broker-dealer takes these securities and re-pledges them to a bank to get a loan (which funds the loan that the broker made to the customer), this is called rehypothecation.
A registered representative receives an order to sell 100 shares of ABC stock that has been "transferred and shipped" to the customer. Before executing the order, the registered representative must: I Ascertain the location of the stock II Ascertain that the securities can be delivered in 3 business days III Validate that the securities are in "good form" IV Obtain physical possession of the securities A. I and II B. II and III C. IV only D. I, II, III, IV
I and II
Under the rules of the Options Exchanges, if a customer's financial condition changes materially, then which of the following will be amended? I Customer New Account Form II Options Agreement III Options Disclosure Document IV Margin Agreement A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
I and II only The rules of the options exchanges require that if a customer's financial condition changes materially, the options agreement signed by that customer must be amended to reflect the change. A revised options agreement must be sent to the customer, and must be signed and returned within 15 days. At the same time, customer account information would also be updated (which just makes sense). A new Options Disclosure Document is sent to customers only if the Options Clearing Corporation changes its rules. There is no requirement to amend the margin agreement, unless the brokerage firm changes the terms of the agreement.
A customer has 1,000 shares of a stock and wishes to sell 100 of the shares. He places a limit order to sell 100 shares at $52. The order is placed, but is erroneously executed as "Sell 1,000 shares at $52." The confirmation to the customer states that 1,000 shares were sold at $52. Which statements are TRUE? I Any loss due to the firm's error must be absorbed by the firm II Any loss due to the firm's error must be absorbed by the customer III The firm must replace the shares that were erroneously sold IV The customer must accept the 1,000 share trade but can immediately buy back the shares in the market A. I and III B. I and IV C. II and III D. II and IV
I and III
An individual customer places an order with a broker at 12:30 PM Eastern Time to "Buy 10,000 shares of ABC stock whenever you think the time is best." This order: I must be entered immediately by the representative as a "Market-Not Held" order II should be entered by the representative at the moment that he or she thinks is appropriate for getting the best execution III must be filled by the close of the market on that trading day IV must be filled by 12:30 PM Eastern Time on the following trading day A. I and III B. I and IV C. II and III D. II and IV
I and III
If a customer places an order with a registered representative and calls back 20 minutes later stating "Cancel the order!" Which of the following statements are TRUE? I If the order was not executed, the order can be canceled without any further action needed II If the order was not executed, the order can only be canceled with approval from the branch manager III If the order was executed and there is a loss upon close-out, the customer is responsible for the loss IV If the order was executed and there is a loss upon close-out, the registered representative is responsible for the loss A. I and III B. I and IV C. II and III D. II and IV
I and III If a customer places an order and then decides to cancel it, as long as the order was not executed, it can be canceled without recourse - there is no need to get the manager's approval to cancel the order. If the order was executed prior to the customer's call to cancel the order, any loss upon close-out would be the customer's responsibility. If there was no error in execution, the order is binding on the customer. Only if there is an error in execution is any loss binding on the firm.
A registered representative is allowed to choose which of the following in a transaction without requiring written trading authorization from the customer? I Price of the security to be purchased II The security to be purchased III The amount of the security to be purchased IV The time of trade execution A. I and III B. I and IV C. II and III D. II and IV
I and IV
When opening an options account which of the following statements are TRUE? I The Options Disclosure Document must be sent at, or prior to, opening the account II The Options Disclosure Document must be sent to the customer at account opening, and must be signed and returned within 15 days III The Options Agreement must be sent at, or prior to, opening the account IV The Options Agreement must be sent to the customer at account opening, and must be signed and returned within 15 days A. I and III B. I and IV C. II and III D. II and IV
I and IV 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.
Which of the following accounts can be opened as margin accounts? I Investment Adviser account II Custodian account III Guardian account IV Executor for an Estate account A. I only B. II and III C. I and IV D. I, II, III, IV
I only As a general rule, fiduciary accounts cannot be opened as margin accounts, unless the authorizing document specifically permits this. Custodian 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).
Custodian accounts can be opened as a: I Cash account II Margin account III Arbitrage account A. I only B. I and II C. II and III D. I, II, III
I only The "default" setting of the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act is that custodian accounts can only be opened as cash accounts. They can be opened as margin accounts only if the State permits it in its version of the law (which some States do, most do not). For the exam, custodian accounts can only be opened as cash accounts, since this is the rule in most States.
A customer buys stock in a margin account, but does not pay within the 4 business day maximum permitted under Regulation T. The brokerage firm can take which of the following actions? I Use existing SMA (credit line) in the margin account to meet the requirement II Request an extension from the self-regulatory organization III Sell out the unpaid position and freeze the account for 90 days IV Liquidate the account and remit any balance due to the customer A. I only B. II and III only C. I, II, III D. I, II, III, IV
I, II, III
A registered representative believes that municipal bonds may be an appropriate investment for her customer. In order to determine whether such a recommendation would be suitable, which of the following would be considered? I The state in which the customer resides II The components of the customer's existing portfolio III The tax bracket of the customer IV Whether the customer is subject to the alternative minimum tax A. III only B. I, IV C. I, II, III D. I, II, III, IV
I, II, III, IV
Which of the following information is needed to open a new cash account? I Customer name II Customer birthdate III Customer citizenship IV Customer occupation A. I and III B. II and IV C. I, II, IV D. I, II, III, IV
I, II, III, IV
A social security number or tax identification must be obtained to open which of the following accounts? I Individual Account II Joint Account III Corporate Account IV Partnership Account A. I and II only B. III and IV only C. I, II, IV D. I, II, III, IV
I, II, III, IV A social security number or tax identification number is needed to open any brokerage account. This is really an Internal Revenue Service requirement, since the brokerage firm is required to report any income received to the IRS under the number.
An account is opened "joint tenants with rights of survivorship." Which of the following statements are TRUE? I If one party to the account dies, the other party wholly owns the account II Orders may be given by either party III Checks can be drawn in the name of either party IV Mail can be sent to either party A. I and II only B. III and IV only C. I, II, IV D. I, II, III, IV
I, II, IV Any checks drawn on an account are made out to the full account name. If it is a joint account, the names of the parties on the account will be on the check - not just one of the parties. In a joint account, orders can be entered by either party; mail can be sent to either party, and in an account with rights of survivorship - if one party dies, the other party wholly owns the account.
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 A. I and III B. I and IV C. II and III D. II and IV
II and III
Under MSRB rules, to make a suitable recommendation, the registered representative must have sufficient knowledge of the customer. Regarding recommendations to a customer, which of the following statements are TRUE? 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 executing an unsuitable trade, the registered representative should execute the trade, denote his exception to the trade in his book, and mark the order ticket as "unsolicited" IV If the customer insists upon executing an unsuitable trade, the registered representative must submit the issue to industry arbitration A. I and III B. I and IV C. II and III D. II and IV
II and III
Which of the following statements are TRUE regarding initial and minimum maintenance margins for a long margin account? I Initial margin is 25% II Initial margin is 50% III Maintenance margin is 25% IV Maintenance margin is 50% A. I and III B. I and IV C. II and III D. II and IV
II and III
A durable power of attorney signed by a customer: I remains in force upon the death of the customer II is terminated upon the death of the customer III remains in force upon the mental incapacitation of the customer IV is terminated upon the mental incapacitation of the customer A. I and III B. I and IV C. II and III D. II and IV
II and III Any power of attorney, durable or non-durable, is terminated when a customer dies. The distinction between a durable and a non-durable power of attorney is that a non-durable power of attorney terminates if the grantor is mentally incapacitated whereas durable power of attorney remains in force if the grantor is mentally incapacitated.
Under the requirements of the USA PATRIOT Act, when opening an account for a non-resident alien, the registered representative must obtain which of the following from the customer? I United States Passport Number II Foreign Country Passport Number III United States Tax Identification Number IV Foreign Country Tax Identification Number A. I and III B. I and IV C. II and III D. II and IV
II and III When opening an account for a non-resident alien, the customer's current passport number (from their country) must be obtained, as well as a U.S. tax identification number for that person.
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 A. I and III B. I and IV C. II and III D. II and IV
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.
Which of the following statements are TRUE regarding joint accounts? I If a party in a Joint Tenants With Rights of Survivorship account dies, his or her share is excluded from his taxable estate II If a party in a Joint Tenants With Rights of Survivorship account dies, his or her share is included in his taxable estate III If a party in a Tenancy in Common account dies, his or her share is excluded from his taxable estate IV If a party in a Tenancy in Common account dies, his or her share is included in his taxable estate A. I and III B. I and IV C. II and III D. II and IV
II and IV 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.
Approval of new accounts for FINRA member firms can be performed by the: I Registered Representative II Branch Office Manager III Financial and Operations Principal A. II only B. II and III C. I and III D. I, II, III
II only Under FINRA rules, new accounts must be approved, in writing, by a Branch Office Manager (Series 9/10 license). Registered representatives cannot approve the opening of new accounts. The Financial and Operations Principal (Series 27 license) is responsible only for the firm's financial reporting and back office operations.
Prior to opening an options account, which of the following steps must be taken? I Receiving the signed options agreement from the customer II Approving the first transaction in the account III Completing the new account form IV Delivering the options disclosure document to the customer A. I and IV only B. II and III only C. II, III, IV D. I, II, III, IV
II, III, IV
Which of following documents are unique to margin accounts? I new account form II margin agreement III loan consent agreement IV credit disclosure statement A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV
II, III, IV A new account form must be completed whether an account is set up as a cash or a margin account. The paperwork that is unique to opening margin accounts includes the margin agreement, which the customer must sign, pledging the securities in the account as collateral for the margin loan; the loan consent agreement, which is customarily signed, where the customer permits the securities in the account to be lent out for short sales by others; and the credit disclosure statement, which explains how the loan balance is computed and interest is charged.
Which of the following transactions are permitted in a custodian account? I Short sale of common stock II Sale of pre-emptive rights III Purchase of warrants IV Purchase of mutual fund shares A. I and II only B. IV only C. II, III, IV D. I, II, III, IV
II, III, IV Custodian accounts cannot be margin accounts - so short sales are prohibited. If securities are purchased, they must be paid in full. If securities are sold, they must be long sales with the proceeds being used for other investments or expenses that benefit the minor. Any type of security can be purchased in a custodian account, as long as the investment is "prudent."
How must an account opened under the Uniform Gifts to Minors Act be titled? A. In the name of the custodian only B. In the name of the minor only C. In the name of the custodian for the minor D. In the name of the minor for the custodian
In the name of the custodian for the minor
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
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.
All of the following are types of accounts in which securities transactions can be effected under Regulation T EXCEPT: A. Cash account B. Margin account C. Arbitrage account D. Non-securities credit account
Non-securities credit account
Who creates the list of SDNs that must be checked when opening an account for a foreigner or foreign entity? A. FINRA B. FDIC C. OFAC D. FinCEN
OFAC
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
Options Disclosure Document
The rules of the options exchanges require that if a customer's financial condition changes materially, which of the following must be amended? A. Options Agreement B. Options Disclosure Document C. Official Statement D. Options Clearing Corporation Prospectus
Options agreement The rules of the options exchanges require that if a customer's financial condition changes materially, the options agreement signed by that customer must be amended to reflect the change. The revised agreement must be sent to the customer, and must be signed and returned within 15 days. At the same time, customer account information would also be updated.
The FINRA suitability rule requires all of the following EXCEPT: A. Reasonable Basis Suitability B. Customer-Specific Suitability C. Quantitative Suitability D. Qualitative Suitability
Qualitative Suitability
Credit from bank to broker is controlled under: A. Regulation T B. Regulation U C. Regulation X D. Regulation Z
Regulation U Regulation U controls credit from bank to broker. Regulation T controls credit from broker to customer.
Which of the following are synonymous terms for the "parties" to a brokerage account? A. First Party / Customer B. Second Party / Customer C. Second Party / Broker D. Third Party / Customer
Second Party / Customer The "First Party" to a brokerage account is the brokerage firm; the "Second Party" to a brokerage account is the customer; the "Third Party" to a brokerage account is anyone other than the broker or customer.
A client has an options account that is qualified to buy options and sell covered calls. The client calls his representative, telling him that he wants to sell naked calls in the account. Which statement is TRUE about this? A. The representative can do this without taking any further action B. The "Special Statement for Uncovered Options Writers" must be provided before executing the transaction C. The "Options Disclosure Document" must be provided before executing the transaction D. The representative must open a separate options account for the customer and segregate the resulting naked options positions
The "Special Statement for Uncovered Options Writers" must be provided before executing the transaction
A client has an options account that is qualified to buy options and sell covered calls. The client calls his representative, telling him that he wants to sell naked calls in the account. Which statement is FALSE about this? A. The customer must be sent a new Options Agreement which must be signed and returned within 15 days B. The Registered Options Principal must reapprove the account for naked options writing C. The customer must cross-guarantee the account because of the increased risk level D. The "Special Statement for Uncovered Options Writers" must be provided before executing the transaction
The customer must cross-guarantee the account because of the increased risk level
Which statement is FALSE? A. The customer's signature is required on a new account form to open a cash account B. The registered representative's signature is required on a new account form to open a cash or margin account C. The manager's or principal's signature is required on new account form to open a cash or margin account D. The customer's signature is required on a margin agreement to open a margin account
The customer's signature is required on a new account form to open a cash account A customer signature is not needed to open a cash account (thus accounts can be opened over the phone). A signature is required for margin accounts only, since such an account requires that the customer pledge all the securities in the account to the brokerage firm in return for a margin loan. The registered representative and the manager (principal) must sign the new account form. By signing, the registered representative indicates that the information is written as stated by the customer; and the manager is signing that the information has been reviewed prior to accepting the account for the firm. (Also note that this is very much a "test world" question. In the real world, pretty much every brokerage firm, as part of the new account form, has an embedded arbitration agreement and has the customer sign it when opening the account. However, this is a firm requirement and not an SEC or FINRA legal requirement. If a brokerage firm wanted to open a customer cash account without the customer signing an arbitration agreement, it could.)
Which procedure is NOT required in order to open a new account for an individual customer? A. The member firm must independently verify the customer's identity by matching customer provided information against government issued documents or a database B. The member firm must independently verify the validity of supporting government issued documents provided by the customer to prove identity C. The member firm must check the customer's name against a government watch list of known or suspected terrorists D. The member firm must give notice to the customer that it will be requesting information to help fight funding for terrorism or money laundering activities
The member firm must independently verify the validity of supporting government issued documents provided by the customer to prove identity
Which statement is TRUE regarding a minor in a custodian account opened under UGMA reaching legal age? A. The new adult must take control of the account B. The new adult can let the custodian retain control of the account C. The new adult can appoint a successor custodian D. The new adult must liquidate the account, and open a new account with the proceeds
The new adult must take control of the account
An institutional customer says the following to his broker: "Buy 100,000 shares of ABC stock whenever you think the time is best. This order is good unless I call you to cancel." Which statement is TRUE about the handling of this order? A. An executed power of attorney must be obtained from the customer prior to accepting the order B. The order must be executed by the close of the market on that trading day C. The order can be accepted as given, and can be executed at the discretion of the brokerage firm at any time or day D. This order can only be accepted if the customer places it via fax or e-mail
The order can be accepted as given, and can be executed at the discretion of the brokerage firm at any time or day
An elderly client has a $400,000 portfolio that is conservatively invested in blue chip stocks and government bonds. He calls his representative and tells him that he wants to liquidate the entire portfolio and buy growth stocks. His son also has an account serviced by the same representative, so the representative calls the son to ask him about how his father is doing, to which the son responds: "Dad has not been himself lately." What step should the representative take? A. The representative should follow the customer's instructions, liquidate the portfolio, and buy growth stocks B. The representative should refuse to follow the customer's instructions C. The representative should contact the client and explain the risks inherent in the customer's strategy D. The representative should contact compliance and ask them to file a SAR
The representative should contact the client and explain the risks inherent in the customer's strategy
When opening a new account, a customer requests that duplicate confirmations and statements be sent to her attorney. What action should the representative take? A. The representative should note the request on the new account form, along with the contact information for the customer's attorney B. The representative should send the request to the firm's P & S Department to process the necessary paperwork C. The representative must have the customer sign a power of attorney naming the attorney as authorized to receive the duplicate statements D. The representative must get approval of the branch manager in order to request duplicate confirmations and statements
The representative should note the request on the new account form, along with the contact information for the customer's attorney
A mutual fund can be used as collateral for a margin account: A. under no circumstances B. after the position has been held in the account for 10 days C. after the position has been held in the account for 20 days D. after the position has been held in the account for 30 days
after the position has been held in the account for 30 days Mutual fund positions are new issues and must be paid in full. After the position has been held in the account for 30 days, it becomes marginable.
A woman in the 15% tax bracket wishes to buy a municipal bond. The registered representative tells her that such an investment is not appropriate. The registered representative can execute the trade: A. if the principal approves B. if the manager approves C. under no circumstances D. at the specific direction of the customer
at the specific direction of the customer
A customer has an existing cash account that holds many different positions in blue chip stocks. The customer has an investment objective of moderate growth and income. The customer contacts his representative, stating that "I think the market will be flat for a while, but I don't want to see my portfolio return drop." The registered representative recommends that the customer sell covered calls against some of the stocks held in the customer account. The representative: A. can do so without any additional documentation as long as options positions taken do not exceed 15% of account value B. cannot do so unless the account is qualified to trade options C. cannot do so unless the stock positions are transferred to a margin account and the customer signs a margin agreement D. can do so without restriction because covered call writing is a conservative strategy that is permitted in a cash account
cannot do so unless the account is qualified to trade options
If a customer wishes to open an account for a minor without additional documentation, the account must be opened as a: A. guardian account B. cash account C. margin account D. conservator account
cash account The "default" setting of the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act is that custodian accounts can only be opened as cash accounts. They can be opened as margin accounts only if the State permits it in its version of the law (which some States do, most do not). For the exam, custodian accounts can only be opened as cash accounts, since this is the rule in most States. No additional documentation is needed for the adult to open the account, as compared to, say opening a trust account, which requires a copy of the trust document.
When opening an account to trade stocks and options, all of the following signatures are needed on the new account form(s) EXCEPT: A. customer signature B. registered representative signature C. general principal signature D. registered options principal signature
customer signature
A parent opens a custodian account for a 10-year old child. The grandparents donate into the account. If the investment income in the account exceeds Internal Revenue Service guidelines, the income is taxed at the: A. minor's tax rate B. gift and estate tax rate C. grandparent's tax rate D. the highest tax rate of the minor, parent or grandparent
gift and estate tax rate If a custodian account is opened by a parent for a minor who is age 18 or under; and if the income exceeds $2,100 in 2019; then the income is taxed at the gift and estate tax rate instead of the minor's rate. The IRS is attempting to stop parents from shifting income to their children, who would typically have less income and thus would be taxed at lower rates.
The purpose of OFAC (Office of Foreign Assets Control) is to: A. set higher margin requirements for foreign nationals that wish to invest in the United States B. monitor the activities of foreign investors in the U.S. markets C. impose economic sanctions against hostile foreign countries and groups D. monitor foreign currency inflows into the U.S. markets
impose economic sanctions against hostile foreign countries and groups
Jack Jones, age 82, has an individual account at your firm. He gives a full written trading authorization to his son, Jack Jones Jr. under a durable power of attorney. Upon the death of Jack Jones, the power of attorney: A. is void B. continues because it is a "durable" power of attorney C. continues because it is a "full" power of attorney D. continues until the executor over the Jack Jones estate is appointed
is void Any power of attorney granted by a customer "dies" when that customer dies. The difference between a "durable" and a "non-durable" power of attorney only relates to mental incapacitation. If an individual that has granted a non-durable power of attorney becomes mentally incapacitated, then that power of attorney becomes void. If an individual that has granted a durable power of attorney becomes mentally incapacitated, the power of attorney continues in effect.
Jack Jones, age 82, has an individual account at your firm. He gives a full written trading authorization to his son, Jack Jones Jr. under a non-durable power of attorney. Upon the death of Jack Jones, the power of attorney: A. is void B. continues because it was given to an immediate family member C. continues because it is a "full" power of attorney D. continues until the executor over the Jack Jones estate is appointed
is void Any power of attorney granted by a customer "dies" when that customer dies. The difference between a "durable" and a "non-durable" power of attorney only relates to mental incapacitation. If an individual that has granted a non-durable power of attorney becomes mentally incapacitated, then that power of attorney becomes void. If an individual that has granted a durable power of attorney becomes mentally incapacitated, the power of attorney continues in effect.
Two brothers wish to open an account at a broker-dealer. One brother will contribute $100,000 and the other brother will contribute $300,000. They have stated that if one should die, then that person's share will go to the remaining brother. What kind of account should be opened? A. partnership account B. joint account with rights of survivorship C. joint account with tenants in common D. 2 separate individual accounts
joint account with rights of survivorship In a joint account with rights of survivorship, if one participant in the account dies, the decedent's share will go directly to the other participant, avoiding probate. In a joint account with tenants in common, if one dies, his or her percentage ownership goes into the estate and is bequeathed to a beneficiary in the will.
Stock held in the custodian 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
letting the rights expire unexercised
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
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.
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
notification to customers of a member firm's privacy policies and practices
Under FINRA rules, numbered accounts are: A. prohibited B. permitted with the prior approval of FINRA C. permitted if the firm maintains a written statement of the customer attesting to ownership D. permitted without any additional supporting documentation
permitted if the firm maintains a written statement of the customer attesting to ownership FINRA requires that accounts be maintained in customer name; however it will allow a numbered account to be maintained if the firm keeps on file a written statement by the customer attesting to ownership. For example, professional traders might worry that if their trades are seen in their name in the firm, that unscrupulous employees might try to "ghost" their trades. If the account is maintained as a numbered account, then whoever sees the order does not know the identity of the customer.
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
person whose social security number was given on the account form
Under FINRA rules, order tickets must be prepared: A. prior to entry of the order B. by the close of business on the day the order was entered C. by the close of business on the last day of that week that the order was entered D. by the date that the transaction settles
prior to entry of the order
All of the following non-exempt securities are marginable EXCEPT: A. securities included in the Pink Sheets B. securities included in the NASDAQ Global Market C. American Stock Exchange listed securities D. New York Stock Exchange listed securities
securities included in the Pink Sheets All securities listed on an exchange, such as the NYSE, NYSE American (AMEX) or NASDAQ, are marginable. Regarding over-the-counter securities, those on the OTCBB or in the Pink Sheets are not marginable (because the market is illiquid).
A firm holds a joint cash account for a husband and wife. The wife calls the registered representative and says "Sell 500 shares of ABC out of the account immediately and send a check for the proceeds made out to my name". The representative should inform the wife that: A. her instructions will be followed exactly B. the transaction requires approval of the husband since it is a joint account C. the trade can be performed but the check must be made out to both names on the account D. a written power of attorney must be on file to perform the trade
the trade can be performed but the check must be made out to both names on the account
