A) Only the customer.
B) Only the registered representative.
C) The customer, the registered representative, and the principal.
D) Only the principal and registered representative.
The customer's signature is not required to open a cash account. For any account, the registered representative must sign the new account form indicating that the information therein is true and complete. A principal must review, and then accept, the new account by signing the form.
If a customer wishes to open a new account but declines to provide all of the financial information the member firm requests, which of the following statements are TRUE?
The member firm may open the account and make recommendations without meeting any other criteria.
The member firm may open the account if it has determined (by other means) that the customer has the financial resources to carry the account and that trading is suitable.
The member firm may not recommend any transactions unless the representative is able, through the information available, to make a suitability determination.
The member firm may not allow trades in the account until the requested information is received.
If a customer refuses to provide financial information, the member firm may use whatever information is available to decide whether to open the account. Any recommendation made to a customer must be suitable, taking into account the customer's investment objectives, financial situation, and any other relevant information. If the information is not provided, the account may be opened, but no investment recommendations may be made.
Which of the following are discretionary orders?
A customer sends a check for $25,000 to an agent and instructs the agent to purchase bank and insurance company stocks when the price appears favorable.
A customer instructs an agent to buy 1,000 shares of ABC Corporation at a time and price determined by the agent.
A customer instructs an agent to purchase as many shares of XYZ as the agent considers appropriate.
A customer instructs an agent to sell 300 shares of LMN, Inc., when the agent deems the time and price appropriate.
Discretion authorizes a representative to choose the security, the amount of shares, or whether to buy or sell. Time and/or price alone are not discretionary decisions.
Which of the following statements regarding discretionary accounts is NOT true?
A) The customer must grant written authorization to the broker/dealer or a designated individual to exercise discretion in the account.
B) The account may not be accepted unless approved in writing by a principal of the member firm.
C) Each discretionary order must be reviewed promptly by a principal.
D) The customer must approve each order before or after it is executed.
To establish a discretionary account, a customer must grant trading authority in writing. Furthermore, the firm must indicate its willingness to handle the account on a discretionary basis through a signature of a principal of the firm. All orders, including those for discretionary accounts, must be reviewed and endorsed promptly, but not before execution.
Which of the following statements regarding a discretionary account is NOT true?
A) A principal must review all trades in the account promptly after execution.
B) A principal must review all account activity frequently.
C) Securities in a discretionary account may not be rehypothecated.
D) A principal must accept the account in writing.
No limits are placed on the rehypothecation of securities in an account based solely on its discretionary status. Both cash and margin accounts may be discretionary.
Under FINRA rules, a principal must review all discretionary accounts:
Under FINRA rules, discretionary accounts must be reviewed frequently by a principal to detect potential abuses such as churning. Nondiscretionary accounts must be reviewed periodically.
All of the following statements regarding discretionary accounts are correct EXCEPT:
A) each order ticket must be reviewed by a principal promptly after execution.
B) power of attorney must be reviewed annually with the customer.
C) a power of attorney must be signed by the customer before the exercise of discretion.
D) each order ticket must be marked "discretionary".
Once a power of attorney is signed by a customer and approved by a principal, discretionary trading may begin. Principals are required to review discretionary accounts frequently. There is no need for an annual review of the power of attorney with the customer.
A partnership roll-up refers to:
A) the liquidation of unprofitable partnership assets.
B) converting an illiquid partnership interest into a more marketable security.
C) payments made to limited partners after the partnership has generated a positive cash flow.
D) the final allocation of profits and deductible expenses before termination of the partnership.
A partnership roll-up refers to converting an illiquid partnership interest into a more marketable security.
Which of the following statements regarding a member firm selling shares of an affiliated company are TRUE?
Disclosure of the control relationship must be made on customer confirmations.
Disclosure of the control relationship is not required on customer confirmations.
Customer permission is required before purchasing shares in a discretionary account.
Customer permission is not required before purchasing shares in a discretionary account.
An affiliated relationship exists if there is a 10% or more ownership interest between a member and an issuer of securities. Disclosure of this relationship must be made to customers. In addition, before purchasing these securities in a discretionary account, the member must secure the customer's written permission.
Under FINRA rules, members are prohibited from soliciting votes from limited partners in connection with a proposed DPP roll-up unless any compensation to be received by the member:
is payable and equal in amount regardless of the outcome of the vote.
is contingent on the outcome of the vote.
does not exceed 2% of the value of the securities to be received in the exchange.
does not exceed 6% of the value of the securities to be received in the exchange.
If a member is soliciting votes from limited partners in connection with a DPP roll-up, any compensation to be received must be payable and equal in amount regardless of the outcome of the vote and cannot exceed 2% of the value of the securities to be received in the exchange.
Which of the following Acts requires all broker/dealers to develop internal policies, procedures, and controls to ensure that anti-money laundering compliance occurs?
A) a registered representative investing in a real estate DPP.
B) OFAC Terrorist Control Act.
C) USA PATRIOT Act.
D) Bank Secrecy Act.
The USA PATRIOT Act of 2001 requires broker/dealers to develop internal policies, procedures, and controls to ensure compliance with anti-money laundering laws.
Under Regulation SP, if a member firm sends to a customer an initial privacy notice that contains an opt-out provision, the firm may not disclose nonpublic, personal information about that customer for how many days from mailing?
A firm must give a customer 30 days to implement any opt-out provision in the privacy notice.
Under SEC rules, firms must do all of the following EXCEPT:
A) update customer account records within 36 months of a change in investment objectives.
B) provide a customer with an updated customer account record within 30 days of a change in investment objectives.
C) create a record for each written agreement entered into with a client.
D) create a record containing the dated signature of each customer granting discretionary authority.
Under SEC rules, firms must provide a customer an updated account record reflecting any change in investment objectives within 30 days of the change. Firms must create a record for each written agreement entered into with a client and a record containing the dated signature of each customer granting discretionary authority.
Which of the following statements regarding customer account record updates required by SEC rules are TRUE?
Changes to a customer's account record must be sent to the customer on or before 30 days after notice of the change.
Changes to a customer's account record must be sent to the customer on or before 60 days after the notice of the change.
Firms must furnish a copy of the customer account record to customers at intervals no greater than 36 months.
Firms must furnish a copy of the customer account record to customers at intervals no greater than 24 months.
SEC rules require that broker/dealers send customers changes in their account records on or before 30 days after notice of the change. Broker/dealers are further required to furnish copies of customer account records at intervals no greater than 36 months.
Under SEC Regulation S-P, all of the following are means whereby a customer can opt out of the privacy disclosure rules EXCEPT:
A) writing a letter to the member firm electing to opt out.
B) mailing back a reply form to the member firm included with the opt-out notice.
C) emailing an opt-out reply to the member firm if the customer has agreed to the electronic delivery of information.
D) using a toll-free number provided by the member firm.
Reasonable opt-out means include the following: including a reply form with the opt-out notice, providing an electronic means to opt out if the customer agrees to the electronic delivery of information, and providing a toll- free number that customers may call to opt out. The SEC has stated that members do not provide a reasonable means to opt out if the only means to do so is by writing a letter to the member.
Under the U.S.A PATRIOT Act, which of the following is a five-year record?
A) Exception reports.
B) Principal designation record.
C) Order tickets.
D) Information that verifies a customer's identity.
Information obtained to verify a customer's identity must be retained for five years after the record is made. Other five-year records include SAR filings and currency transaction reports.
A new customer opens an account at your firm and immediately buys 1,000 shares of XYZ. Two weeks after opening the account, your firm has NOT been able to verify the customer's identity. Under SEC rules, your firm must:
A) close the account.
B) freeze the account.
C) transfer the account.
D) take whatever action it deems appropriate.
You may open the account provided you have basic information such as name, address, Social Security number, and date of birth. The rules require that you verify the customer's identity within a reasonable period of time before or after the account is opened. The SEC does not proscribe what you must do if you are unable to verify identity. The SEC does say, however, that your written supervisory procedures must describe what you will do in this situation.
Which of the following statements is NOT true of Regulation S-P?
A) Consumers must be given an annual privacy notice.
B) Customers must be given annual privacy disclosures on a separate piece of paper.
C) Consumers must be given an initial privacy notice.
D) Customers may be provided privacy information on internet web pages.
A customer with an ongoing relationship with a member and must receive both an initial and an annual privacy notice. It may be included in other documents but must be clear and conspicuous.
Your firm has determined that a person seeking to open an account is on the Office of Foreign Asset Control's (OFAC) list of individuals who are viewed as threats to the United States. Who must oversee your firm's dealings, if any, with this individual?
A) The U.S. Treasury will have OFAC send a licensed agent to handle this account.
B) An officer of the firm previously given responsibility in this area.
C) The registered representative whom the person approaches.
D) The principal of the registered representative whom the person approaches.
Financial institutions, including broker/dealer firms, must designate an officer of the firm as having responsibility for monitoring OFAC regulations and overseeing the blocking of transactions or declining of business with certain customers.
A busy customer has just opened a new account at your firm. She has given her lawyer limited power of attorney over the account to pursue a trading strategy for her while she makes an extended business trip. Which of the following statements regarding this customer's communications are TRUE?
Confirmations of trades may be sent to the lawyer with power of attorney over the account only if the customer requests it in writing and if duplicates are also sent to the customer.
The firm must always send confirmations to the person who holds power of attorney over an account.
The firm may hold mail for the customer while she is traveling, but only for specific periods of time.
The firm must hold mail for the customer without restriction for as long as she requires the service.
The customer is ultimately responsible for her own account. Confirmations of trades will be sent to a third party only upon written request, with the customer receiving duplicates. A firm may hold mail for a customer for two months if she is traveling in the United States and for three months if she is traveling abroad.
DPP rollups refer to the combination or reorganization of:
A) four or more limited partnerships.
B) one or more limited partnerships.
C) two or more limited partnerships.
D) three or more limited partnerships.
Rollups refer to converting an illiquid partnership into a more marketable entity. All it takes to create a rollup is one partnership.
Before selling nonconventional products such as distressed debt, members are:
required to perform a reasonable-basis suitability analysis.
not required to perform a reasonable-basis suitability analysis.
required to perform a customer-specific suitability analysis.
not required to perform a customer-specific suitability analysis.
FINRA requires members that wish to sell these products to perform both a reasonable-basis suitability analysis and a customer-specific suitability analysis. A reasonable-basis suitability analysis is necessary to ensure that an investment is suitable for some investors as opposed to a customer specific suitability analysis, which is undertaken on a customer-by-customer basis.
Mr. Jones walks into one of your firm's branches wishing to open up a cash account. He has been referred to your firm by one of its biggest clients. He provides your firm with all of the information required to open the account but indicates he has no identification with him. Under SEC rules, your firm may:
A) open the account but refrain from accepting a deposit until proper identification is received.
B) open the account, accept a deposit, and invest per the customer's instructions.
C) not open the account until proper identification is received.
D) open the account, accept a deposit, but refrain from investing until proper identification is received.
SEC rules require that we verify a customer's identity within a reasonable time period before or after account opening. Therefore, the account may be opened and investments made.
Under the USA Patriot Act, firms must make records relating to wire transfers of:
A) $5,000 or more.
B) $10,000 or more.
C) $3,000 or more.
D) $2,000 or more.
The Patriot Act requires firms to make and retain records relating to wire transfers of $3,000 or more. Information to be collected includes the name and address of both sender and recipient, the amount of the transfer, the name of the recipient's financial institution and the account number of the recipient.
All of the following, under Regulation SP, would be considered non-public personal information EXCEPT
A) information about a customer's bank balance.
B) information about a customer's portfolio of securities.
C) information obtained about a customer from a credit reporting firm.
D) aggregated information about customers' trading strategies.
Aggregated information is non-personal as it does not identify a particular customer.
For which of the following pairs of customers could a registered representative open a joint account?
A father and his 13-year-old son.
Two business partners.
An aunt and her minor nephew.
An account owner is the person who controls investments within an account and requests distributions of cash or securities from the account. A joint account may be opened only by account owners who can legally exercise such control over the account. Minors may not exercise control over an account.
If Alpha Enterprises, Inc. wants to open a cash account, a firm must have all of the following documents on file EXCEPT:
A) a new account form.
B) a copy of the corporate charter.
C) a copy of the corporate resolution.
D) a hypothecation agreement.
Each cash account must have a new account form on file, and a corporation's charter must be provided as proof that the corporation exists. In addition, a resolution is needed to designate the officer(s) authorized to enter orders. A hypothecation agreement is only needed to open a margin account.
If a new joint tenants with rights of survivorship account is opened, all of the following statements are true EXCEPT:
A) checks may be drawn in the name of either party.
B) orders may be given by either party.
C) mail may be sent to either party (with the permission of each party).
D) in the event of death, the decedent's interest in the account goes to the other party.
While either party may enter an order, any money or securities delivered out of the account must be in the names of both owners.
Which of the following statements regarding joint accounts/tenants in common are TRUE?
Each party specifies a percentage of interest in the account.
Each party has an equal interest in the account.
The interest of a deceased tenant passes to the estate of the decedent.
The interest of a deceased tenant passes to the co-tenant.
In a TIC account, each party must specify a percentage of interest in the account. If one party dies, his percentage of ownership passes to his estate, not to any other party to the account.
Under the provisions of an UGMA account, which of the following occurs when the minor reaches the age of majority?
A) Any securities in the account must be converted to cash.
B) The account must be turned over to the donee.
C) The account must be turned over to the donor.
D) The account remains as an UGMA account.
Under the terms of the Uniform Gifts to Minors Act, when a minor reaches the age of majority, the proceeds must be handed over to the new adult.
Under the Uniform Gift to Minors Act, all of the following are permissible EXCEPT:
A) the purchase of securities on margin.
B) gifts of cash to a minor.
C) gifts of securities to a minor.
D) the donor and the custodian are the same person.
UGMA accounts may never be opened as margin accounts.
After purchasing 75,000 shares of ABCD, an institutional customer instructs the member firm handling the trade to deliver the securities to an agent bank on a delivery versus payment basis. Which of the following statements are TRUE?
Prior to delivery, the member must receive assurance from the bank that funds are available to pay upon delivery.
Prior to delivery, the member must receive assurance from the institution that proper instructions have been given to the bank.
If delivery is delayed, the member has up to 35 calendar days from trade date to obtain payment.
If delivery is delayed, the member has up to 60 calendar days from trade date to obtain payment.
With DVP accounts, a member firm must receive assurance from the customer that proper instructions have been given to the agent bank. There is no requirement to contact the bank directly. Further, if delivery is delayed by the mechanics of the transaction, the member has up to 35 calendar days from trade date to deliver and obtain payment.
Under Uniform State Law, a guardianship account must be opened within how many days of court appointment?
Under Uniform State Law, guardianship accounts must be opened within 60 days of court appointment (the date the guardian receives a court order).
A customer selects one member firm to provide for financing and custody of securities, while orders to buy or sell are placed with executing brokers. This is an example of a(n):
A) give-up clearing arrangement.
B) managed account.
C) omnibus clearing arrangement.
D) prime brokerage account.
A prime brokerage account is one in which a customer (generally an institution) selects one member to provide custody and financing of securities and executes trades with other firms known as executing brokers.
All of the following statements regarding UGMA accounts are true EXCEPT:
A) the custodian may remove monies from the account for the benefit of the minor.
B) the custodian must reinvest any cash buildup in the account within a reasonable period of time.
C) warrants in the account must be exercised or sold.
D) upon the death of the minor, the assets in the account pass to the custodian.
The custodian may remove monies for the benefit of the minor and must reinvest cash buildups within a reasonable time. Upon the death of the minor, the assets in the account pass to the minor's estate, not to the custodian. Rights and warrants in a custodial account may not be allowed to expire unexercised.
Under SEC rules, the minimum equity required for prime brokerage accounts is:
D) $1 million.
The SEC requires a minimum equity of $500,000 for prime brokerage accounts. The minimum net capital requirement is $1,500,000.
Under FINRA rules, fee-based accounts must be reviewed by member firms:
Members are required to review fee-based accounts periodically to determine whether they remain appropriate.
A customer opens an account with XYZ Discount Securities and signs a loan consent agreement. The member firm is now permitted to:
A) hypothecate securities in the customer's account.
B) commingle the customer's securities with securities owned by the firm.
C) loan the customer money and charge interest.
D) lend the customer's marginable securities.
The loan consent agreement allows the firm to loan out customer margin securities. The other components of a margin agreement (the hypothecation agreement and the credit agreement) are necessary to allow the firm to pledge customer securities and to extend credit to a customer. Securities owned by a customer may not be commingled with firm securities.
The loan consent agreement allows the firm to loan out customer margin securities. The other components of a margin agreement (the hypothecation agreement and the credit agreement) are necessary to allow the firm to pledge customer securities and to extend credit to a customer. Securities owned by a customer may not be commingled with firm securities.
Under SEC Rule 15c2-1, a customer's securities may be commingled with those of other customers if all customers express their consent in writing. The broker/dealer can pledge these customer securities to a bank to obtain a loan, provided the loan does not exceed the amount the broker/dealer reloans to the customers. Customer securities may never be commingled with firm positions. The firm may loan out customer margin securities if the customer has signed a loan consent agreement.
SEC rules prohibit broker/dealers from overborrowing on customer margin securities. Which of the following statements is TRUE?
A) Broker/dealers may use customer margin securities equal to 100% of the current debit balance as collateral for cash loans from banks. If the margin account is restricted, broker/dealers can use securities equal to 140% of the debit balance.
B) Broker/dealers may use margin securities equal to 140% of a customer's debit balance as collateral for bank loans.
C) Broker/dealers may borrow from banks in amounts equal to 140% of their aggregate margin account debit balances.
D) Broker/dealers may use all margin securities in amounts greater than 140% of the customer's debit balance as collateral for cash loans from banks.
SEC rules limit the amount of margin stock a broker/dealer can use as bank loan collateral to 140% of a customer's debit balance. The SEC's rule ensures that a broker/dealer is never allowed to borrow more money against customer securities than the firm itself is lending to a customer.
A broker/dealer may take exception to the transfer of a customer account in all of the following situations EXCEPT:
A) when the firm does not recognize the account.
B) when the account transfer instructions are incomplete.
C) when the firm does not recognize the signature on the transfer form as valid.
D) when there is a discrepancy in the valuation of the account.
A firm carrying a customer account may not take exception to transfer instructions solely because of a disagreement about the value of the securities in the account. The firm may take exception if it has no record of the account, the transfer instructions are incomplete, or the signature appears to be invalid.
All of the following are characteristics of SMA in a margin account EXCEPT that SMA:
A) is an amount equal to the customer's buying power .
B) may be released to a customer provided this does not cause a maintenance call.
C) is another name for excess equity.
D) represents a credit line to a customer.
A customer may use an SMA balance to buy twice that amount in securities. SMA may be withdrawn (provided the account is not brought below maintenance). SMA is another name for excess equity, and SMA represents a credit line.
In order to open a margin account, all of the following documents are necessary EXCEPT a:
A) loan consent agreement.
B) margin agreement.
C) disclosure form for interest charges.
D) new account form.
A standard margin agreement has three components: hypothecation agreement, credit agreement, and loan consent form. A loan consent agreement is not required to open a margin account.
A customer's margin account shows a market value of $13,200 and a debit balance of $8,400. The maintenance market value is:
The long market value at maintenance refers to the market value where the account would be at minimum maintenance (25%). The account is currently at 36% ($13,200 − $8,400 = $4,800). To compute long market value at maintenance, divide the debit balance by 0.75, which results in a market value of $11,200. If the market value falls to $11,200, the account would be $2,800.
A customer has a margin account with a market value of $18,000 and a debit balance of $10,000. How much did the broker/dealer borrow using customer securities as collateral?
A broker/dealer, using customer securities as collateral, can never borrow more than the firm relends to the customer ($10,000).
In a new margin account, a customer buys 2,000 shares of ABCD at $35 per share. What amount of securities can be rehypothecated by the member firm?
The amount of securities that can be rehypothecated by a member to finance a customer's debit balance is 140% of the debit balance. The customer is buying $70,000 of ABCD stock, which will result in a Fed call of $35,000. Therefore, the customer will be borrowing $35,000. LMV − DB = EQ ($70,000 − $35,000 = $35,000). Applying 140% to the debit balance means the member will be taking $49,000 of ABCD to a bank to collateralize the loan.
A customer purchases stock in a cash account. Two days later, the price of the stock has risen and the customer places a sell order before paying for the purchase. Which of the following statements is TRUE?
A) The member must accept the order.
B) The member must refuse the order.
C) The member can accept the order as soon as payment is received for the purchase.
D) The member can accept the order only if the customer instructs the member to hold the proceeds.
A customer is long the stock as of trade date. However, the customer is not owner of record until settlement date, which is the date payment is expected. The fact that the customer has not paid for the stock is irrelevant. The member must accept the order to sell. However, the member will then freeze the account and will only lift the freeze if payment is received within five business days of the trade date (Regulation T).
Excess margin securities are defined as securities in excess of:
A) the customer's debit balance.
B) 70% of the customer's debit balance.
C) minimum maintenance margin requirements.
D) 140% of the customer's debit balance.
Excess margin securities are securities in excess of 140% of the customer's debit balance. Margin securities (140% of the debit balance) are at a bank collateralizing the customer's debit. For example, if a customer purchases $20,000 of stock, the customer will put up $10,000 and borrow $10,000. The member will take $14,000 of the stock to a bank to collateralize the $10,000 debit. The balance ($6,000) of the stock must be placed in segregation (excess margin securities).
Customer credit agreements signed when opening margin accounts must contain all of the following information EXCEPT:
A) the terms under which the interest rate can change.
B) the stated rate of interest.
C) the method for determining the debit balance.
D) the basis upon which interest will be computed.
The stated rate of interest is not part of the credit agreement. Interest charged on customer debit balances will vary daily with the call loan rate.
Which of the following FRB rules governs the lending from banks to broker/dealers with securities as collateral for such loans?
A) Regulation X.
B) Regulation A.
C) Regulation U.
D) Regulation T.
Bank-to-broker/dealer lending is covered under Regulation U. It also governs bank-to-customer lending when the proceeds are used to purchase securities.
When a customer sells securities in a restricted account, the customer is permitted to remove half the proceeds from the sale from the account. This is referred to as the:
A) SRO requirement.
B) retention requirement.
C) proceeds requirement.
D) maintenance requirement.
When securities are sold in a restricted account, at least half the proceeds must be retained in the account (the retention requirement) to reduce the debit balance. The other half may be removed by the customer.
With regard to margin accounts, members must deliver to noninstitutional customers a disclosure document:
A) at or before opening the account.
B) at or before the first trade in the account.
C) at or before the customer's first monthly statement.
D) within 30 days of account opening.
The disclosure document, which describes the risks associated with margin trading, must be delivered at or before account opening. The document must also be provided to margin customers annually.
A member firm wishes to increase its in-house maintenance margin requirements. Under FINRA rules:
A) no advance notification is required.
B) it must advise its customers at or before the increase.
C) it must advise its customers at least 15 days before the increase.
D) it must advise its customers at least 30 days before the increase.
A firm may change its in-house margin requirements at any time without advance written notice.
Which of the following will change the SMA balance in a long margin account?
A) Cash dividend received.
B) Stock dividend received.
C) Interest charged on the debit balance.
D) Decline in the market value of the positions held.
Cash dividends are credited to SMA, increasing the balance that can be borrowed. At the same time, they reduce the debit balance. If the customer borrows the cash dividend within 30 days of receipt, the SMA balance is reduced to its prior level and the debit balance is increased to its prior level.
A customer, after purchasing $12,000 of stock in a margin account, deposits $8,000 and borrows the balance from the broker-dealer. Under SEC Rule 15c2-1, the broker-dealer, using customer securities as collateral, may borrow up to a maximum of
Broker-dealers may never borrow more, using customer securities as collateral, than they re-loan to customers. In this case, the customer is borrowing $4,000.
A customer buys $25,000 of stock and deposits the required margin. The member firm, to finance the purchase, will
A) rehypothecate $25,000 of stock and borrow $17,500.
B) rehypothecate $25,000 of stock and borrow $12.500.
C) rehypothecate $17,500 of stock and borrow $12,500.
D) rehypothecate $17,500 of stock and borrow $17,500.
The firm is limited to 140% of the customer's debit balance when taking stock to a bank for a loan. In this case, the customer's debit balance is $12,500. ( 140% × $12,500 is $17,500 )
Which two of the following best describe a restricted long margin account?
Equity is below the initial requirement
Equity is below the maintenance requirement
Debit balance is greater than the loan value
Debit balance is less than the loan value
A restricted account is one where the percent equity is below initial (50%) but at or above the minimum (25%). Take the following example: long market value $40,000, debit balance $25,000 and equity $15,000. The percent equity is about 38%; therefore, the account is restricted. Further, the loan value is $20,000 which is 50% of the current market value. Note that the debit balance is greater than the loan value.
If a customer does not pay for securities purchased within two business days of regular way settlement date, the broker/dealer may request a time extension from:
A) its designated examining authority.
C) the Chicago Stock Exchange.
D) the Philadelphia Stock Exchange.
A time extension may be requested from the broker/dealer's designated examining authority (DEA), which could be FINRA or one of the exchanges.
When a client's cash account is frozen, the client:
A) may not trade under any circumstances.
B) must deposit the full purchase price before a purchase order may be executed.
C) must deposit the full purchase price no later than the settlement date for a purchase.
D) may make sales only with the firm's permission.
When an account is frozen, the client may still purchase, but must deposit the full purchase price before any order may be entered.
A customer sells short 100 shares of DOH at 44 and meets the initial margin requirement. At which of the following market prices will the customer get a margin maintenance call?
The maintenance margin on short positions is 30% of the current market value. The formula for determining the point at which a short seller will get a margin maintenance call is the credit balance divided by 130%. In solving this problem, the credit balance in the customer's account is $6,600 ($4,400 short sale proceeds plus $2,200 Regulation T margin at 50%). The customer would get a call for more margin money if the stock sold short went above 50.77 as shown ($6,600 / 130% = $5,077).
As an initial transaction in a margin account, a customer sells short 1,000 shares of a capital market stock at $2 per share. If Regulation T is 50%, how much money will the customer be required to deposit?
The industry requirement to short stocks below $5 per share is 100% of market value or $2.50 per share (whichever is greater).
A stock lender retains all of the following rights EXCEPT the right to:
A) additional shares resulting from a stock dividend on the loaned stock.
B) vote the loaned stock.
C) cash dividends on the loaned stock.
D) additional shares resulting from a stock split on the loaned stock.
A stock lender retains the right to cash or stock dividends on the loaned stock. In addition, the lender retains the right to additional shares resulting from stock splits. Voting rights, however, belong to the person who bought the stock from the short seller.
A customer has a short margin account which has a credit balance of $39,000 and a market value of $26,000. The short market value at maintenance is:
The short market value at maintenance is the market value to which the short position could rise that would put the account right at minimum (30%). The easy way to compute this market value is to divide the credit balance in the account by 1.3.
CR − SMV = EQ
$39,000 &minus $26,000 = $13,000 (50%).
$39,000 / 1.3 = $30,000. If the market value should rise to $30,000, the account would be:
$39,000 − $30,000 = $9,000 (30%).
A day trading risk disclosure statement must be given to customers of:
A) firms that have a website that allows multiple entry of intra-day trades of the same securities.
B) all of these.
C) firms that promote a day trading strategy.
D) firms that promote lower execution costs based on multiple trades.
A day trading risk disclosure statement is only applicable to firms that promote a day trading strategy.
All of the following statements are true regarding pattern day traders EXCEPT:
A) minimum maintenance margin requirement is 25%.
B) cross guarantees are prohibited.
C) buying power is 4 times SMA.
D) minimum equity required is $25,000.
Buying power is four times maintenance margin excess, which is equity in the account above the 25% minimum requirement.
A customer's margin account may be guaranteed:
A) by another customer of the broker/dealer carrying the account.
B) by a member of the customer's immediate family.
C) by the broker/dealer carrying the account.
D) under no circumstances.
A customer's account may be guaranteed by another customer of the broker/dealer carrying the account. The account guarantee must be in writing. This is also known as a cross guarantee, which is prohibited for pattern day traders.
Which regulation requires that margin credit obtained outside the U.S. be in compliance with Federal Reserve rules?
Regulation X of the Federal Reserve requires that margin credit obtained outside the U.S. be in compliance with Regulation T if the credit is obtained from a foreign branch of a broker/dealer, or with Regulation U if the credit is obtained from a foreign bank.
To be eligible to open a portfolio margin account, a customer must have been approved to:
A) purchase penny stocks.
B) purchase DPPs.
C) engage in pattern day trading.
D) write uncovered options.
Only customers who have been approved for uncovered option writing are eligible to open portfolio margin accounts.
A clearing firm is required to file, with FINRA, information on the time extension requests it made on behalf of its introducing firms. These reports must be made:
To monitor extension requests, FINRA requires clearing firms to file monthly reports within five business days of month end, indicating which of its introducing firms requested extensions that exceeded 2% of their total transactions for the month. If an introducing firm has a ratio that exceeded 3%, it will be prohibited from any further extension requests for a 90-day period if it does not reduce its ratio by the next monthly reporting period.
All of the following securities are eligible for portfolio margining EXCEPT:
A) exchange traded funds.
C) secured corporate debt.
D) put options.
Debt securities are subject to conventional margin rules.
Under FINRA rules, maintenance calls on portfolio margin accounts must be met:
A) within 3 business days.
C) within 1 business day.
D) within 5 business days.
Maintenance calls on portfolio margin accounts must be met within 3 business days.
Upon being informed that one party to a tenants in common account has died, a registered representative should:
A) allow the surviving tenants to continue trading.
B) transfer half of the assets to the survivor.
C) freeze the account.
D) transfer all of the assets to the surviving tenants.
The assets of a deceased tenant in a TIC account eventually go to his estate. A registered representative first freezes the account and then awaits the proper court documents. If the account was JTWROS, trading by the surviving tenants could continue.
In a proxy contest, a member firm holding securities in street name for clients who are beneficial owners must:
A) send the proxy material to the beneficial owners at the member firm's expense.
B) vote the proxies as it wishes.
C) send a list of the beneficial owners' names and addresses to the issuing company so that it may send proxy materials to those owners.
D) send the proxy material to the beneficial owners at the issuing company's expense.
A securities firm that is a member of FINRA must forward all proxy material to the beneficial owners for all securities held in street name, and the issuers must bear the expense of shipping the proxy material.
Assume that many analysts believe emerging companies and speculative stocks will soon be profitable. If a broker/dealer wants to engage its sales force in an all-out telephone campaign to solicit business for these low-priced volatile stocks, this:
A) would not be ethical.
B) would only be permissible if each customer is warned to diversify into higher quality investments.
C) would only be permissible if the broker/dealer believes each customer would make money.
D) is always permissible.
Under the Conduct Rules, members are prohibited from making blanket recommendations of low-priced speculative stocks.
How many business days after the settlement date does a broker/dealer have to buy in a customer who has failed to deliver securities to satisfy a sale?
SEC rules require that customer fails to deliver be bought in no later than ten business days after settlement.
Under SEC rules, broker/dealers must notify customers of free credit balances at least:
According to SEC Rule 15c-3-2, a firm must notify its customers of their free credit balances at least quarterly--monthly for active accounts.
All of the following statements regarding customer confirmations are true EXCEPT:
A) the confirmation must disclose if a control relationship exists.
B) the customer must receive the confirmation no later than the business day after the trade.
C) the confirmation must disclose whether the broker/dealer is a market maker in the security sold.
D) the confirmation must disclose commissions if the firm acted as agent.
The customer must be sent or receive a confirmation from the broker/dealer no later than completion of the transaction.
Under FINRA rules, all of the following information must be included on an order ticket EXCEPT:
A) whether the trade is solicited or unsolicited.
B) if a sale, whether long or short.
C) terms and conditions of the order.
D) whether the member is a market maker in the security bought or sold.
Information on an order ticket includes terms and conditions of the order; whether the trade is solicited, unsolicited, or discretionary; if a sale, whether long or short; locate requirement, if required; and a time stamp. Whether the member is a market maker in the security bought or sold is not required on an order ticket (but it is required on the confirmation).
Under SEC rules, all of the following information must be on a customer confirmation EXCEPT whether the:
A) member is a market maker in the security bought or sold.
B) member has a control relationship with the issuer.
C) trade was solicited or unsolicited.
D) member acted as agent or principal.
Under SEC Rule 10b-10, a customer confirmation must include whether the member acted as agent or principal; whether the member acted in a dual agency capacity; the commission in an agency trade; the markup or markdown in a principal trade of a Nasdaq security; if the member is a market maker in the security; if a control relationship exists between the member and the issuer; and the time of execution or a statement that it will be furnished upon request. Whether the trade was solicited or unsolicited is not a required disclosure (although many firms do disclose this information).
An order ticket, under FINRA rules, must be prepared before:
A) the execution of the order.
B) order entry.
C) 4:00 pm ET on trade date.
D) settlement date.
All order tickets showing the account name or number must be prepared before order execution.
A customer is long 500 shares of ABCD in a cash account and short 200 shares of the same stock in a margin account. If the customer wants to sell the 500 shares in the cash account, the order ticket must be marked:
A) sell 500 long.
B) sell 500 short.
C) sell 200 long, sell 300 short.
D) sell 300 long, sell 200 short.
If a customer is long and short the same security, the customer is long only to the extent of the net long position. The customer has a net long position of 300 shares.
A member firm receives a signed proxy from a customer who failed to indicate how his shares held in street name are to be voted at the annual shareholder's meeting. Under NYSE rules, the member firm:
A) must vote the shares as recommended by management of the issuer.
B) may vote the shares as it sees fit.
C) may vote the shares as it sees fit only if a principal attends the meeting.
D) cannot vote the shares.
If the beneficial owner of street name stock returns a signed proxy statement but fails to indicate how the shares are to be voted, the member must vote the shares as recommended by management of the issuer.
Under state law, an offer of rescission made by a broker/dealer to a customer must be accepted or rejected by the customer within how many days of the offer?
An offer of rescission must be accepted within 30 days of the offer. Rescission can occur if a member solicits an unsuitable trade for a customer and subsequently wishes to rescind the trade. With an offer of rescission, the member offers to buy back the security from the customer at cost plus interest at 6%. The offer becomes void after 30 days, and the customer can no longer sue for recovery of any losses.
A registered representative enters several market orders for customers in the morning and, before close, asks the operations manager to change the account numbers on the tickets. Under FINRA rules, the operations manager should:
A) immediately advise the branch manager.
B) effect the changes.
C) not take any action.
D) contact the customers involved.
FINRA rules prohibit alterations to order tickets after the trade is entered. A ticket can only be changed with the approval of the branch manager.
If a customer fails to return a proxy statement to a member firm by the tenth day before the annual meeting, the member may vote the shares:
A) provided the matters to be voted on are of minor importance.
B) without restriction.
C) with the permission of the issuer.
D) under no circumstances.
If a customer signs and returns a proxy statement and fails to indicate how the shares are to be voted, the member must vote the shares as recommended by management of the issuer. If, however, the customer does not return the proxy by the tenth day before the annual meeting, the member may vote the shares as it sees fit as long as the matters to be voted on are of minor importance. If the matters are of major importance (e.g., a merger or the issuance of additional shares), the member may never vote the shares.
Under FINRA rules, a firm will be prohibited from selling a security as principal and buying that security as agent for a customer if it has a fail to deliver in that security that is:
A) 30 days old or older.
B) 60 days old or older.
C) ten days old or older.
D) 20 days old or older.
If, for whatever reason, a firm is unable to close out a customer fail to deliver within 60 days of settlement date, the firm will be prohibited from selling that security as principal and buying that security as agent for a customer. Note that fails to deliver should be bought in after ten business days from settlement.
A registered representative with over 200 variable annuity customers leaves Firm A to join Firm B. The annuity contracts are held by the insurance company issuer, and Firm B wishes to have the broker/dealer of record changed for these accounts by issuing a bulk transfer instruction. Which of the following statements is true?
A) Bulk transfer instructions may be issued after sending negative consent letters to contract holders.
B) Bulk transfer instructions are prohibited under FINRA rules.
C) Bulk transfer instructions may be issued after contract holders have provided their consent after receiving affirmative consent letters.
D) Bulk transfer instructions may be issued immediately.
Bulk transfer instructions can be issued only after sending affirmative consent letters to contract holders and receiving their approval. The use of negative consent letters is not permitted.
Under FINRA rules, confirmations for DVP trades must be delivered to customers:
A) no later than T+2.
B) on settlement date.
C) no later than T+1.
D) on trade date.
Confirmations on DVP trades must be delivered to customers no later than T+1.
A client, after reviewing his monthly statement, notices that the purchase price shown for a trade differs from the price shown on his confirmation. The customer would be best advised to:
A) contact his firm's compliance department.
B) contact his representative and let him make the necessary correction.
C) send an email to the firm's Website.
D) contact his firm's operations department.
An email sent to the firm's Website may get lost. Of the other choices, his best bet would be to contact the compliance department.
Which of the following may be electronically signed by customers?
A) Penny stock disclosure documents.
B) Account transfer instructions.
C) Margin agreements.
D) New account forms.
ACATS transfer instructions mat be electronically signed.
A customer of an introducing firm, in reviewing his monthly statement, notices an error in the number of shares of XYZ he recently purchased.. Under FINRA rules, the customer should notify:
A) the clearing firm.
C) both his firm and the clearing firm.
D) his firm.
Both firms should be notified.