Understanding, Trading, Customer Accounts, and Prohibited Activities Part 5
A broker-dealer firm opening a corporate account must establish all of the following EXCEPT
location of any account records the corporation will keep when received
For margin transactions taking place through introducing broker-dealers, those who do not clear their own transactions, extension requests are
made by the clearing firm
The income level of a donor
may affect contributions into a Coverdell ES
When securities are bought and sold, ownership changes hands between the buyer and the seller
on the settlement date of the transaction
Broker/dealers who reserve the right to disclose nonpublic private information about their customers to unaffiliated third parties must
provide notice to customers at the time of the account opening and provide reasonable means for customers to opt out of such disclosures
Under the Uniform Transfers to Minors Act (UTMA) a custodian has control over the account and can do each of the following EXCEPT
sell short and write uncovered call options
A party wishing to solicit proxy authority to vote a particular stockholder's shares must register with
the Securities and Exchange Commission
All of the following would require that updated account information be sent to the customer for confirmation within 30 days EXCEPT
the account records system has been changed to a new format Updated account information must be sent to the customer with 30 days for confirmation upon the opening of the account, at least once every 36 months thereafter, and in the event of the customer notifying the firm of changes in any information shown or listed on the account form.
What are the 2 basic types of return on an investment?
Capital gains and income
Which of the following settlement arrangements has trade and settlement occurring on the same day?
Cash settlement
Which of the following must be signed by a customer wanting to open a margin account?
Credit and hypothecation agreements
A customer receives a Regulation T margin call for $3,200. To meet the deposit requirement, which of the following can be deposited?
Fully paid for marginable securities totaling $6,400 in market value When meeting a Regulation T margin call with cash, 100% of the call must be deposited—in this case, $3,200. If using fully paid for marginable securities to meet the call, a deposit totaling twice the amount of the call must be made—in this case, $6,400. This is because securities are only marginable to 50% of their value.
Which of the following might be considered a red flag in a customer's account activities?
Funds and securities are moved from one account to another for no apparent reason.
Which of the following must be opened as a cash account?. Custodial accounts Individual retirement accounts Joint accounts Partnership accounts
I and II
As long as it is not restricted in any documentation, margin trading is permissible in which of the following accounts? Corporate IRA Partnership Fiduciary
I and III
Which of the following records must be kept by a broker-dealer firm for 6 years? Customer new account forms Advertising the firm has published Stock records Minute books
I and III New account forms filled out when the customer account was opened and stock records showing all the securities held by the firm and where they are held must be kept for 6 years. Minute books showing the minutes of directors' meetings are lifetime records. Advertising need only be kept for 3 years.
Which of the following are account types that can be opened at a broker-dealer? Credit account Margin account Cash account Debit account
II and III
Under what circumstances could a broker-dealer firm share in a financial loss with a customer?
If the loss was due to an error on the part of the firm
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 RR. Which is it?
In a nondiscretionary account no order can be entered without your prior approval.
In which of the following accounts would the use of margin always be prohibited?
Individual retirement accounts
Under FINRA's Code of Procedure, which of the following is NOT a sanction that could be imposed against a firm or registered person?
Jail sentence for an associated person of the firm A jail sentence is not within the jurisdictional powers of FINRA.
In left unexecuted, a good til cancel (GTC) order will automatically be canceled when?
On the last business day of April and the last business day of October
Which of the following regarding income is TRUE?
Salary or bonuses are earned income; interest and dividends are investment income.
Which of the following must be kept for the life of the firm?
Stock certificate book
A GTC order is left unexecuted at the end of the trading day on the last business day of April. Which of the following is TRUE?
The order will be automatically canceled.
Which of the following statements best describes the term "churning"?
Trading in a customer's account considered excessive, and for which no discernible investment purpose is detected.
Which of the following securities are most likely deemed marginable by either the Federal Reserve Board (FRB) or regulatory bodies such as FINRA and the New York Stock Exchange?
Treasury bonds
A customer has given permission for securities in an investment account to be used for the purpose of other customers who want to borrow them in order to sell those securities short. This would have entailed the customer signing
a loan consent form
The price of a certain stock has diminished over the last several months to the point where it may be delisted by the exchange where it trades. An action the issuer could take in this case would be
a reverse split
All of the following unregistered persons may under certain circumstances receive commissions from a FINRA member firm EXCEPT
a suspended broker who recommends the broker's firm for a transaction
Which of the following are required if a registered representative is to share in profits and losses with a customer? The trades must be done in a joint account. The customer must be a family member of the representative. The principal must give permission in writing for the arrangement. The broker-dealer firm must also be a tenant in the account.
and III
Each of the following are likely to be found on a trade confirmation EXCEPT
bond credit rating
Margin calls can be met with deposits of
cash or fully paid for marginable securities
All of the following are stages of money laundering EXCEPT
diversification
A customer has purchased a stock and then sold it before paying for the purchase. This is generally known as
freeriding
An associated person of a FINRA member firm has been found guilty of forging a customer's signature on a document relating to a securities transaction. Under the Code of Procedure, FINRA could impose any of the following sanctions EXCEPT
imprisonment for a specified period
A new customer opens a margin account and, upon account approval, does an initial transaction purchasing 100 shares of MJS common stock at $25. How much will the customer need to deposit?
$2,000 For the first trade in a newly opened margin account, there must be at least $2,000 in equity. The rule is as follows: transaction greater than $4,000, deposit 50%; between $2,000 and $4,000, deposit $2,000; and if the transaction is less than $2,000, deposit 100% of the purchase price. In this case, the transaction was between $2,000 and $4,000, and so a deposit of $2,000 is required.
A corporation with 1 million shares of stock outstanding wishes to sell another 250,000 shares. When management conducts a rights offering, a shareholder owning 100 shares will be given stock rights to purchase how many additional shares?
250 shares Stock rights (also known as preemptive rights or subscription rights) give current shareholders the ability to preemptively purchase enough shares to maintain their proportionate ownership of the corporation. This prevents their dividend and voting power from being diluted. The shares outstanding in this case will go from 1,000,000 to 1,250,000. This investor must thus go from owning 100 shares out of 1,000,000 to 125 shares out of 1,250,000. This would require that the investor be able to purchase an additional 25 shares.
A customer has just notified the brokerage firm of a change of address. How long does the broker-dealer have to provide the customer with an amended account record for confirmation?
30 calendar days
Once a customer account has been opened at a broker-dealer, rules require that updating information on the account record occur no less frequently than once every
36 months
Which of the following statements is the most CORRECT regarding customer accounts?
A customer may open both a cash and margin account at the same time.
Of the following, which would NOT be considered institutional communications with the public?
An internal memo promoting a new product that will be offered to your firm's institutional customers only
Which of the following must precede the first trade in an account?
Approval of the new account by a principal
Which of the following orders can be used to close a short position in CDT stock that consists of 1,000 shares?
Buy 1,000 shares of CDT
A customer of a broker-dealer purchases 100 shares of XYZ stock at $50 per share on Monday. Later that week, a confirmation arrives electronically indicating that the total cost of the transaction was $5,000. The client is puzzled that there is no additional charge for commission. The most likely reason for that is
the broker-dealer acted as a principal in the trade Broker-dealers must always indicate their capacity on the confirmation. If the client had looked, there would have been a statement something to the effect of "we acted as principals in this trade". When the firm does that, there is no commission; there is a markup (in the case of a buy) or a markdown (in the case of a sell). In this instance, the actual price of the stock would have been lower than $50 per share and the BD marked it up to $50. (e.g., price of $49.50 with a .50 markup = $50) When the firm is acting as an agent however, commissions are always disclosed.
With a discretionary account
the customer may still enter orders
A customer wanting to open a margin account is told that the securities will be held in street name. This means that the securities will be registered in
the name of the broker-dealer
All member firm communications are held to certain standards by FINRA. All of the following characterize those standards EXCEPT
the nature of the audience (age, investment experience) need not be a consideration at an open seminar
All of the following are true regarding market indexes EXCEPT
they track single stocks rather than hypothetical portfolios
