An individual is declared incompetent in a court proceeding. What type of account can be opened for this person with appropriate documentation?
A. Cash account
B. Guardianship account
C. Joint account
D. An account may not be opened
B. Guardianship account
A customer directs a registered representative to execute a trade which the representative believes is unsuitable for the customer. After explaining this, the customer directs that the trade be performed. The representative should:
A. refuse the order
B.
C. execute the order, but note his exception in the customer account file
A customer account holds $100,000 of Negotiable Certificates of Deposit that are maturing. The customer has inquired about alternative investments that can be made with these funds. To make a suitable recommendation, inquiry should be made as to the custo
D. I, II, III.
Custodian accounts can ONLY be opened as a:
CASH ACCOUT
A customer is short 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
B. $18,000.
A customer is long 1,000 shares of ABC stock at $50 in a margin account. The minimum maintenance margin requirement is:
A. $10,000
B. $12,500
C. $15,000
D. $25,000
B. $12,500
Which of following statements about the conduct of customer accounts are TRUE?
I Securities in a custodian account cannot be held in street name
II Fiduciary accounts cannot be opened as margin accounts unless specifically authorized in the trust document
D. I, II, III, IV.
Under FINRA rules, a written power of attorney is required for a registered representative to choose which of the following order related items?
I Security to be traded
II Size of the order
III Price of Execution
IV Time of execution
A. I and II
B. III an
A. I and II.
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
A. I only
In order to open a discretionary cash account, all of the following procedures are required EXCEPT:
A. signature of manager on new account form
B. signed trading authorization
C. signed customer's agreement
D. completed customer new account form
C. signed customer's agreement
A customer wishes to open an options account with your firm. Which of the following procedures are required PRIOR to the first trade?
I The new account form must be completed
II The customer must be sent an Options Disclosure Document
III The customer mus
C. I, II, IV.
Which of following statements about the conduct of customer accounts are TRUE?
I Securities in a custodian account cannot be held in street name
II Fiduciary accounts cannot be opened as margin accounts unless specifically authorized in the trust document
D. I, II, III, IV.
Delivery of the privacy notice required under Regulation SP is required for:
A. retail customers
B. institutional customers
C. retirement plan customers
D. any of the above
A. retail customers
Under FINRA rules, a registered representative must obtain and retain which of the following information relating to the customer's account?
I Customer Address
II Country of Citizenship
III Financial Status
A. I only
B. I and II
C. II and III
D. I, II, II
D. I, II, III.
A customer places an order to buy 100 shares of ABC at the market. The execution report shows the trade occurring at $45.63. The firm sends out a confirmation which states that the trade occurred at $45.38. Which statement is TRUE?
A. The customer will pa
B. The customer will pay $4,563 plus any applicable commissions.
Under FINRA rules, if a member suspects that a senior citizen is being financially exploited:
I a temporary hold may be placed on disbursements from the account for up to 10 business days
II a temporary hold may be placed on disbursements from the account
C. II and III.
A customer is short 1,000 shares of ABC stock, valued at $5 per share. The minimum maintenance margin requirement is?
A. $1.50 per share
B. $2.50 per share
C. $5.00 per share
D. $7.50 per share
C. $5.00 per share
Which of the following statements are TRUE regarding joint accounts?
I Orders can be given by either party
II All parties must enter orders together
III Checks can be made out in the name of either party
IV Checks can only be made out to all parties toget
B. I and IV.
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 growt
B. The address to be used for Customer Identification purposes is the address of a close relative
Order ticket information must be recorded by the member firm prior to order:
A. entry
B. execution
C. cancellation
D. confirmation
A. entry
The maximum amount of customer securities that can be rehypothecated by a broker is:
A. 100% of the debit balance
B. 140% of the debit balance
C. 180% of the debit balance
D. 200% of the debit balance
B. 140% of the debit balance
Which one of the following orders requires specific customer authorization?
A. "Buy 100 shares of ABC at the best price available"
B. "Sell 100 shares of ABC at the market"
C. "Buy 100 shares of any computer stock priced at under $40"
D. "Sell 100 shares
C. "Buy 100 shares of any computer stock priced at under $40".
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 p
D. II and IV.
Under MSRB rules, inquiry should be made about which of the following in order to make suitable recommendations to customers?
I Investment objective
II Tax bracket
III Investment Experience
IV Financial Situation
A. I only
B. II only
C. II and IV
D. I, II
D. I, II, III, IV.
When comparing a "Convenience Account" to Transfer on Death (TOD) registration:
A. opening a Convenience Account does not require a court order while a Transfer on Death account does
B. the named person in a Convenience Account has no ownership rights upo
B. the named person in a Convenience Account has no ownership rights upon the owner's death, while the named person in a TOD account does.
If a customer sells securities and fails to deliver on settlement date, the position must be bought in how many business days later?
A. 1
B. 5
C. 10
D. 90
C. 10 days
When comparing a "Convenience Account" to Transfer on Death (TOD) registration:
A. opening a Convenience Account does not require a court order while a Transfer on Death account does
B. the named person in a Convenience Account has no ownership rights upo
B. the named person in a Convenience Account has no ownership rights upon the owner's death, while the named person in a TOD account does.
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
A. I only
All of the following paperwork is customarily needed to open a margin account EXCEPT:
A. Margin agreement
B. Loan consent agreement
C. Joint account agreement
D. Credit agreement
C. Joint account agreement
Under FINRA rules, "suitability" means that:
A. securities that are delivered on settlement are in "good" form
B. investment recommendations made to a customer are appropriate for that investor
C. new accounts that are opened at the firm are of a similar
B. investment recommendations made to a customer are appropriate for that investor.
Earlier this year, a client of yours wrote a letter to the firm, requesting that his mail be held for 2 months, which your firm did. Later in the year, the customer writes another letter, asking that the mail be held for another 2 months. What is the appr
You can follow the customer's written instructions and hold the mail for an additional 3 months if the letter included an acceptable reason for holding the mail.
In a custodian account, only the __________ is permitted to trade. Anyone can donate into such an account.
Custodian
When opening a custodian account, the social security number to be used on the account is that of:
The minor
Since custodian account property is considered to be "owned" by the minor, the social security number of the minor (not the custodian) is used on the account. The custodian does not have to be the father or mother of the minor!
Customers must be given information about SIPC:
at, or prior to, account opening
At, or prior to, account opening, the customer must be provided with the telephone number and web site address of SIPC (Securities Investor Protection Corp., which insures customer accounts against broker-dealer failure),
A customer buys 100 shares of ABC stock at $10 as an initial transaction in a margin account. The customer must deposit:
$1,000
Even though minimum equity to open a long margin account is $2,000, this does not apply if the securities in the account are fully paid. A customer cannot be asked to deposit more than 100% when buying since this is the maximum potential loss. The
tax liability in a custodian account is the responsibility of the:
Tax liability in a custodian account is the responsibility of the minor; each year any income is reported to the IRS using the minor's social security number. Tax is due on that income in the year it was received - there is no waiting until the minor reac
Recommendations by a registered representative to a customer about uncovered call writing strategies are unsuitable if the:
Recommendations about options should not be made to a customer unless he has received an Options Disclosure Document; and the account has been approved by the Registered Options Principal; and the registered representative believes that the recommendation
f 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 nee
A. 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 t
If any more than price or time is selected, the trade is _____________ and requires a written power of attorney from the customer from FINRA.
Discretionary
If a customer wishes to give a gift of securities to her nephew under the Uniform Transfers To Minors Act, the age for transfer of the account to the minor is determined by:
The transfer age is set by the custodian, up to the maximum age permitted by the State
Assets in an UGMA account transfer to the new adult at:
Legal age
When opening an account to trade stocks and options, which of the following signatures are needed on the new account form(s)?
I Registered options principal signature
II General principal signature
III Registered representative signature
IV Customer signa
C. I, II, III
The customer's signature is not required on a new account form. It is required on the options agreement, margin agreement and loan consent agreement.
The regular new account form for equity securities requires the signature of the ___________ and the ___________
Registered Representative and the General Principal.
The ______________________, required for options trading, is signed by the registered representative, who is attesting to the fact that the information on the form is true; and must be approved before the account is traded by the registered options princi
Options New Account Form
A customer that wishes to open a new account is asked by the registered representative for a government issued photo identification. The customer gives the representative a copy of his driver's license, which the representative notes has expired 3 months
C. As long as another non-documentary method is used to verify the customer's identity, the account can be opened
To open an account for a new customer, what 4 critical pieces of information must be obtained before the account can be opened:
1. Customer Name
2. Mailing Address
3. Social Security Number
4. Birthdate
The customer information used to verify the opening of a new account must done within:
within a reasonable time after account opening.
How can verification be done on the customer's information when opening a new account?
This verification can be done either by matching the 4 critical pieces of information to a valid government issued identification (which cannot be expired) or by using a database service to perform the match.
How must an account opened under the Uniform Gifts to Minors Act be titled?
In the name of the custodian for the minor.
Under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA), any adult can open a custodian account for any minor. The account must be titled in the name of the custodian for the minor
A customer makes a purchase of $22,100 of ACME Income Fund in her margin account. The customer must deposit:
$22,100
Mutual fund shares are new issues sold with a prospectus, and as such, require that 100% of the purchase amount be paid. Once the position has been held in the account for 30 days, it becomes marginable and has loan value.
To open a partnership account, the social security number(s) or tax identification number to be used is (are) the number(s) of:
The Partnership
To open an account for any legal business entity such as a corporation, partnership or trust, the tax identification number of the entity must be used
Regulation T defines 3 types of accounts in which securities transactions can occur:
1. Cash account where full payment is required
2. Margin account where partial payment is required.
3. Arbitrage account for going "short against the box.
Is a list of state-approved securities that can be purchased by commercial banks, savings and loan, pension plan and for fiduciary accounts. Typically consists of conservative, high-grade bonds and preferred stocks.
Legal List
If an investor wishes to open a margin account, which of the following paperwork is customarily completed?
1. New Account Form
2. Hypothecation Agreement
3. Loan Consent Agreement
4. Credit Agreement
If a customer wishes to open a margin account, the customer must sign a ________________, which explains how the loan balance is computed and how interest will be charged on the loan.
Credit Disclosure Agreeement
Custodian accounts, Guardian accounts, and Executor accounts are all __________ accounts.
Fiduciary Accounts
Investment adviser accounts are essentially regular customer accounts with a _______________ authroization given to the Investment Adviser.
Third Party Trading Authorization
Which of the following signatures must appear on the New Account Form when a customer is opening a cash account?
Registered Representative AND Manager or Principal.
The customer does not need to sign the new account form - he or she does sign the margin agreement and loan consent agreement if a margin account is opened, however
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
C. II, III, IV
A new account form must be completed whether an account is set up as a cash or a margin account.
Regulation T sets the initial margin to purchase a marginable stock position at:
50% of the purchase amount
What two persons can approve the opening of an account under FINRA rules at a FINRA member firm?
Branch Office Manager or General Principal
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
D. I, II, III, IV
A customer wishes to open a new account, but refuses to give his or her social security number and date of birth, claiming that the release of such information would allow the customer's identity to be stolen. Which statement is TRUE?
A. As long as the cu
D. The account cannot be opened
There are 4 critical pieces of information that must be collected to open a new account for an individual customer - Name, Address, Birthdate, and Social Security number. The member firm must independently verify the custom
A new customer wants to open an account at your firm. When you ask him for a street address, he tells you that he will be moving soon to a different apartment complex and wants to use his business address. Which statement is TRUE about this?
The business address can be used for Customer Identification purposes and the account can be opened
One of the critical pieces of information that must be obtained at account opening is the customer's address - either residence or business street address.
In order to independently verify the identity of a corporation that wishes to open a brokerage account, which documentation is acceptable?
I Certified articles of incorporation
II Better Business Bureau membership certificate
III State-issued business lic
A. I and III
To verify the identity of a corporation that wishes to open an account, government issued identification is required to perform the match. This would take the form of the company's certified articles of incorporation (which are certified by t
Which of the following information is required on a new account form?
I Type of account - cash or margin
II Type of securities that can be traded in the account
III Country of citizenship of account holder
IV Proof of domicile of account holder
A. I and I
C. I and III only
The type of account (cash or margin) is needed when opening a new account, since a margin account requires the customer's signature on a separate "margin agreement." The country of citizenship of the account holder is needed because the
Under FINRA rules, when opening a new account for the customer, the:
A. name of the representative servicing the account must be recorded in the account file
B. CRD number of the representative servicing the account must be recorded in the account file
C.
A. name of the representative servicing the account must be recorded in the account file
As part of the customer account information required by FINRA, the name of the representative assigned to the account must be recorded. This way, FINRA knows who is r
An existing customer must be notified about SIPC and where SIPC can be contacted:
annually by the member firm
At, or prior to, account opening, the customer must be provided with the telephone number and web site address of SIPC (Securities Investor Protection Corp., which insures customer accounts against broker-dealer failure), throu
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 p
D. 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 openi
Under SEC rules, customer account information must be verified by the member firm:
I within 15 days of account opening
II within 30 days of account opening
III every 12 months
IV every 36 months
A. I and III
B. I and IV
C. II and III
D. II and IV
D. II and IV
SEC rules require that the basic customer account information collected at account opening be sent separately to the customer for verification within 30 days of account opening; and this information must be sent for verification and updating
The definition of a pattern day trader is a person who executes at least:
4 day trades in a 5 business day period
The definition of a "pattern day trader" is a person who engages in at least 4 day trades in a 5 business day time period. Day traders take on greater risks than normal customers and are therefore subject to a more
Which of the following are defined as products offered by investment advisers?
I Non-managed fee based accounts
II Managed fee based accounts (wrap accounts)
III Per trade commission charge accounts
A. I only
B. I and II only
C. II and III only
D. I, II,
B. I and II only
Fixed fee accounts (non-managed fee based accounts) only cover trading costs. They do not include charges for asset allocation and portfolio management. Wrap accounts include asset allocation and portfolio management. Any fixed fee produc
When comparing fixed fee accounts to wrap accounts:
I Fixed fee accounts generally only cover transaction costs
II Fixed fee accounts generally cover transactions costs, asset allocation and portfolio management
III Wrap accounts generally only cover tran
B. I and IV
Fixed fee accounts (non-managed fee based accounts) only cover trading costs. They do not include charges for asset allocation and portfolio management. Wrap accounts include asset allocation and portfolio management. Any fixed fee product is
FINRA requires that, if a fee based account is recommended to a customer, the customer must receive a :
disclosure document that details all services provided and costs involved, at, or prior to, account opening.
If a FINRA member firm maintains fee based accounts for customers, the supervisory procedures should include:
I Periodic review of fee based accounts to determine whether they remain appropriate for their respective customers
II Review of any changes in c
D. I, II, III
The concern of FINRA is that customers may be charged more for fee based accounts than they would have been charged if they simply paid a commission on each trade. Thus, the volume of trading in the account must be high enough to justify a f
Under FINRA rules, fixed fee accounts should be reviewed for appropriateness for customers at a minimum:
Annually
If it is determined that a customer account that is paying an annual flat-fee would have been cheaper if the customer paid a commission on each trade, then the member firm:
A. must refund the excess charges to the customer, with interest, based on the pre
D. must contact the customer, providing the information needed to determine if the customer should maintain the fee based account
Non-Managed Fee Based Accounts (NMFBA) must be reviewed annually for appropriateness for each customer. If, as a result of th
To open an options account, the customer must be sent the Options Disclosure Document:
at or prior to opening the account
A customer must sign and return which of the following documents within 15 days after opening an options account?
A. Options Disclosure Document
B. Options Agreement
C. New Account Form
D. Loan Consent Agreement
B. Options Agreement
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 in
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
B. 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 "Charac
A customer has bought an options contract and after 15 days, still has not returned the signed Options Agreement. The customer is only allowed to make which of the following transactions in this account?
Closing Sale
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 th
B. The "Special Statement for Uncovered Options Writers" must be provided before executing the transaction
Most firms have a structure for options account qualification that codes accounts as Level 1, 2, 3 or 4.
A Level 1 account can only sell covered cal
Under the rules of the Options Exchanges, if a customer's financial condition changes materially, then which of the following will be amended?
I Options Disclosure Document
II Options Agreement
III New Account Form Information
A. I and II only
B. II and I
B. II and III 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
A new customer wishes to open an options account with your firm. All of the following procedures are required prior to the first trade EXCEPT the:
A. customer must complete an Options Agreement
B. Registered Options Principal must approve the account befo
A. customer must complete an Options Agreement
To open an options account, the new account form must be completed and the date that the customer was furnished with the latest Options Disclosure Document (ODD) must be placed on the new account form. The RO
Recommendations by a registered representative to a customer about options strategies are unsuitable if the:
I customer has not received the Options Disclosure Document
II opening of the account has not been approved by the Registered Options Principal
II
C. I, II, III
Recommendations about options should not be made to a customer unless he has received an Options Disclosure Document (ODD); and the account has been approved by the Registered Options Principal; and the registered representative believes tha
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
A. 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
Under FINRA rules, initial approval of new accounts, in writing, is performed by the:
General Principal
When opening an account to trade stocks and options, which of the following signatures are needed on the new account form(s)?
I Registered options principal signature
II General principal signature
III Registered representative signature
IV Customer signa
C. I, II, III
The customer's signature is not required on a new account form. It is required on the options agreement, margin agreement and loan consent agreement.
Which documents are completed when opening a margin account?
1 new account form
2. margin agreement
3. loan consent agreement
4. credit disclosure statement
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 includ
What document, once signed, permits a broker dealer to borrow customer securities to effect short sales for other clients?
Loan Consent Agreement
Which of the following are types of joint accounts?
I Partnership account
II Tenancy in common account
III Joint tenants with rights of survivorship account
IV Custodian account
A. I and IV
B. II and III
C. I, II, III
D. I, II, III, IV
B. II and III
All of the following are types of joint accounts EXCEPT:
A. Tenancy in Common account
B. Joint Tenants with Rights of Survivorship account
C. Tenants by Entireties account
D. Omnibus account
D. Omnibus account
Ownership options for joint accounts are either Tenancy in Common, where each person has a specified ownership interest; or Joint Tenants With Rights Of Survivorship, where each tenant owns 100% of the account. In some states, a "JTWROS
In a joint tenants with rights of survivorship account:
I a specific percentage ownership is assigned to each party
II each party owns an undivided interest in the account
III if one party dies, that person's interest goes to his beneficiary or estate
IV
D. II and IV
In a joint tenants with rights of survivorship account, each party owns an undivided interest in this account, that is, legally each tenant 100% owns the account. If one person dies, the other party wholly owns that account, avoiding probate.
Two brothers wish to open an account to trade stocks, with one brother depositing $100,000, and the other brother depositing $200,000. When opening the account, the brothers specify that they want their respective interests to go to their beneficiaries if
C. joint account with tenancy in common
In a joint account with tenancy in common, each owner has a divided interest in the account. A specific percentage ownership is assigned to each participant. In this case, the brother contributing $100,000 out of $3
Which of the following statements are TRUE regarding joint accounts?
I Minors can participate in a joint account
II Minors cannot participate in a joint account
III Adults can participate in a joint account
IV Adults cannot participate in a joint account
C. II and III
Only adults can participate in a joint account, since only adults have the legal capacity to sign a binding joint account agreement. Minors cannot participate in a joint account - the only way to open an account for a minor is via a fiduciar
The principal reason for an institutional investor to open a prime brokerage account is:
Consolidation of account positions with one broker
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
B. 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.
When comparing a full power of attorney given in a brokerage account to a limited power of attorney, the person given the:
A. full power of attorney can draw checks only
B. full power of attorney can enter orders only
C. limited power of attorney can draw
D. limited power of attorney can enter orders only
A person holding a limited power of attorney in a brokerage account can enter orders but cannot draw checks. A person holding a full power of attorney can do both - but any checks must be drawn to account
In order to open a discretionary cash account, which of the following procedures are required?
I Completed Customer New Account Form
II Signed Trading Authorization
III Signed Customer's Agreement
IV Signature of Manager on New Account Form
A. I and II on
C. I, II, IV
A signed customer's agreement is only required for a margin account; it is not used in a cash account. The customer's agreement is the hypothecation agreement. To open a discretionary cash account, a new account form must be completed by the
If a retail customer gives a market-not held order:
The order is treated as a "day" order.
Custodian accounts opened by parents for their minor children that have substantial dividend or interest income are:
Taxable at the parent's tax bracket
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 2018; then the income is taxed at the parent's rate instead of the minor's rate. The IRS is attempting
What are four examples of acceptable methods for opening an investment adviser account?
1. Each client opens a cash account and gives a Third Party Trading Authorization to the investment adviser
2. Each client opens a margin account and gives a Third Party Trading Authorization to the investment adviser
3. The adviser opens an Omnibus cash
A type of brokerage account where the customer is charged a single annual fee for all account services, regardless of activity in the account, is known as a:
Wrap Account
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 documentatio
C. 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 statem
Under FINRA rules, order tickets (which are now electronic) must be prepared in writing prior to:
Order entry
A registered representative takes an order from a customer to buy 100 shares of SPQR stock at $40 and writes the order ticket for processing. The registered representative fails to note the execution price on the ticket. Which statement is TRUE?
A. The or
B. The order will be returned to the representative for entry of the execution price
Incomplete order information on an order ticket will result in the ticket not being processed. It will be returned to the representative for entry of all of the required
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,
A. I and III
The customer placed a limit order to sell 100 shares at $52. The trade was erroneously executed and 1,000 shares were sold at $52. The firm erroneously executed the trade. If the firm made an error in execution, any loss due to the firm's err
A customer places an order to buy 1,000 shares of a stock at $40. The registered representative enters the order. After execution, the registered representative notices that he had erroneously entered the wrong number of shares on the order ticket. The am
C. II and III
The firm is obligated to make good on the order and provide the customer with 1,000 shares at $40 - as long as the market would have allowed that particular order to be executed. This is an error in execution, and such errors are the respons
If there is no activity in a customer's account, statements are mailed:
Quarterly
If a customer requests in writing and no specific reason is given, that customer's mail can be held for a maximum of:
3 months
FINRA does not allow a customer's mail to be held unless the customer requests in writing. As long as the request does not exceed 3 months, no other information is needed. However, if the customer wants the mail held for more than 3 months, then
Customer mailings can be sent by e-mail instead of through the physical mail system if:
The customer provides a valid e-mail address. This is done by the customer e-mailing the request for electronic mailings.
A customer that discovers an error on his or her account statement must report the error:
I promptly
II before the next account statement is generated
III to the representative servicing the account
IV to the member firm maintaining the account
A. I and I
B. I and IV
The issue at hand is that FINRA is concerned about registered representatives that do unauthorized trading in their customer accounts to generate commission income, without the customer knowing about or authorizing the transactions. So FINRA r
If a customer wishes to have his account transferred to another broker at the same firm, which of the following statements are TRUE?
I The branch manager must approve the transfer
II The branch manager does not have to approve the transfer
III The new acc
A. I and III
If a customer wishes to have his account transferred to another broker at the same firm, the branch manager must approve the transfer. There is no requirement to complete another completely new "new account form" for this customer - the firm
Under FINRA rules, orders can be effected for an account that is transferred from another brokerage firm when the:
Carrying firm validates the account transfer form
Under FINRA rules for transfer of accounts from firm to firm. The customer must complete an account transfer form detailing positions at the receiving firm. This is sent immediately to the "old" carrying f
A customer has a proprietary position in an account that he wishes to transfer. He would be notified that the account:
Proprietary position must either be liquidated or retained at the carrying firm
If the assets are held in proprietary products of the carrying firm, these cannot be transferred - since they are only offered by the carrying firm. The customer would have to
Which of the following paperwork is required for trades to be effected in an account for a deceased person who held an individual account at a brokerage firm?
I Executor's authorization certificate
II Copy of the death certificate
III Affidavit of domicil
C. I, II, III
There are no trading authorizations in Executor accounts - only the executor gets to trade the account.
What paperwork is required for trades to be effected in an account for a deceased person who held an individual account at a brokerage firm?
Court order or executor's authorization certificate
A registered representative is notified verbally by the nephew of a client that his uncle has passed away. Which statements are TRUE regarding the actions that the registered representative can take based on this information?
I The registered representati
C. II and III
Customer account records to be kept by a registered representative under FINRA rules are:
I a record by customer name or account number of each security position
II a record of the aggregate position maintained among all customers in each security
III cop
A. I and II only
FINRA rules require that a registered representative keep records of all positions within a customer's account (that makes sense) and a record by company of all customer positions in that security (that way, you know how many shares of th
A registered representative must keep which of the following records related to each existing customer account?
I Copy of the new account form information
II Chronological record of trades
III Current account statement detailing securities positions for e
D. I, II, III, IV
At all times the registered representative must keep the following records relating to each existing customer account under FINRA rules:
1. Copy of new account form information
2. Chronological record of trades
3. Current account stateme
Which brokerage firm department would be responsible for keeping customer account records?
Margin department
The margin department is a bit of a misnomer since this department keeps a record of all stock positions, and debit and credit balances in customer accounts.
A tender offer has been made for PDQ common shares. The brokerage firm department that would handle the tendering of shares is the:
The reorganization department
The reorganization department of a brokerage firm handles corporate reorganizations such as tender offers and takeovers.
The brokerage firm department that prepares and mails trade confirmations to customers is the:
Purchase and Sales department
The purchase and sales department prepares and mails customer confirmations. The margin department keeps a record of securities positions, and debit and credit balances in customer accounts. The reorganization department of a
The reorganization department of a brokerage firm would be responsible for handling the following:
I Notifying customers of a takeover
II Notifying customers if a bond is being called
III Preparing customer confirmations
IV Keeping a record of debit and c
B. I and II
The reorganization department notifies customers of takeovers and tender offers. Also, they notify customers if bonds are being called. Essentially, the department is responsible for handling any unusual situation that would affect the custome
Under the provisions of the PATRIOT Act, if a non-U.S. citizen wishes to open a brokerage account, which of the following must be obtained?
I A copy of the customer's U.S. passport
II A copy of the customer's foreign passport
III The customer's U.S. tax I
C. II and III
To open an account for a non-U.S. citizen, a copy of the customer's foreign passport must be obtained; and the customer must have a U.S. tax identification number.
Under the requirements of the USA PATRIOT Act, if a member firm suspects that an account is engaging in money laundering, the firm is obligated to file a(n):
SAR with FinCEN
If a member firm suspects that a customer is engaging in money laundering, a Suspicious Activities Report ("SAR") must be filed with FinCEN - the Financial Crimes Enforcement Network.
What is the best way to ensure that a broker-dealer has an effective AML program?
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) proce
Delivery of the privacy notice required under Regulation SP is required for:
Retail Customers
Regulation SP ("Statement of Privacy") requires member firms to provide a privacy notice to retail customers only. Firms cannot divulge non-public information about customers to third parties unless the firm has given notice to the custom
SEC Regulation SP covers:
Notification to customers of a member firm's privacy policies and practices
Regulation U controls credit from:
Bank to broker
Regulation U controls credit from bank to broker. Regulation T controls credit from broker to customer. The Federal Reserve only deals with member banks - it does not deal with the public.
Call loans made by banks to broker-dealers are secured by:
Customer security positions in margin accounts held by the firm
Call loans are secured by customer margin securities. Fully paid customer securities cannot be pledged for these loans - they must be segregated and placed in safekeeping. The loans are not s
Interest charges on customer debit balances are based on the:
Broker Loan Rate, also known as the Call Loan Rate
Brokers borrow from banks using customer securities as collateral at the Broker Loan rate, also termed the Call Loan rate. The interest charged to customers on loans made by brokers is based on this rate
A customer has opened a margin account and has signed only the hypothecation agreement, but not the loan consent agreement. The brokerage firm can do which of the following with the customer's securities?
I Commingle the customer's securities with those o
A. I and IV
When a customer signs a margin account agreement, he or she allows the brokerage firm to keep the securities in street name; to commingle them with other customers' margin securities; and to pledge those securities to a bank for a loan. The br
The maximum amount of customer securities that can be rehypothecated by a broker is:
140% of the debit balance
The maximum amount of customer securities that can be pledged to a bank by a broker is 140% of the customer's debit balance. This amount of securities results in the bank almost exactly funding the amount of money loaned by the b
Regulation T applies to which of the following:
I U.S. Government bonds traded over-the-counter
II Municipal bonds traded over-the-counter
III Common stocks traded on exchanges
IV Preferred stocks traded over-the-counter
A. I and II
B. III and IV
C. III o
B. III and IV
Reg. T of the Federal Reserve Board only applies to non-exempt securities - these are the securities that are NOT exempt from the provisions of the Securities Act of 1933; and the Securities Exchange Act of 1934. Governments and municipals a
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. Neithe
A. 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. Bot
Under the provisions of Regulation T, monies must be collected for securities purchases:
Promptly
Regulation T requires that payments for securities purchases be collected "promptly," but no later than "S + 2" - or no later than industry "regular way settlement" of 2 business days + 2 additional "grace" days; for a maximum time period to coll
Barring an extension request, under Regulation T, payment for a securities transaction must be received no later than:
4 business days after the trade date.
While it is true that Regulation T of the Federal Reserve Board requires that customers pay for securities purchases "promptly," the payment must be received no later than "S + 2," which is 2 grace days past settlemen
If no extension request is made, securities that have been purchased by a customer for which no payment has been received, must be liquidated after:
S + 2
Regulation T of the Federal Reserve Board requires that customers pay for securities purchases "promptly" but no later than "S + 2" = industry regular way settlement + 2 business days. Since regular way settlement is 2 business days, if payment is n
Under Regulation T, the time period granted by FINRA for an extension of payment on monies due is:
2 business days.
Which statements are TRUE if a customer's account is frozen?
I No trading can occur during the freeze period
II Trading is permitted during the freeze period
III The freeze period lasts for 30 days
IV The freeze period lasts for 90 days
A. I and III
B. I
D. II and IV
When an account is "frozen," for a 90 day period, the customer must pay cash in advance to buy. If the customer wishes to sell, the security must be delivered to the broker before the sell order is entered.
There is no prohibition on trading
Regarding SMA in a margin account that is at 50% margin, for every $1.00 increase in market value in a long account, the SMA:
Goes up by$.50 cents
Regarding SMA in a margin account that is at 50% margin, for every $1.00 decrease in market value in a short account, SMA:
Goes up by $1.50
Minimum maintenance margin for a short account is:
30% of the market value.
A customer opens a short margin account by selling short 300 shares of XYZ stock at $80 per share and deposits the required margin. If the stock declines in value by 25%, the customer's equity in the account will
A. remain unchanged
B. increase by 12.5%
C
D. increase by 50%
The equity has increased from $12,000 to $18,000 - a 50% increase.
To compute equity in the combined account:
Compute the long and short accounts separately and then add them together
A customer buys 1 ABC Jan 50 Call @ $4 and 1 ABC Jan 50 Put @ $5 on the same day in a margin account when ABC closes at $49. The customer must deposit:
$900
To buy an option, 100% of the premium must be deposited. $400 and $500 = $900 deposit.
A customer buys 1 ABC Jan 85 Put @ $6 and sells 1 ABC Jan 75 Put @ $2 when the market price of ABC is $83. The customer must deposit:
$400
The customer has created a debit spread:
Buy 1 ABC Jan 85 Put @ $6
Sell 1 ABC Jan 75 Put @ $2
$4 Debit
The customer's maximum potential loss is the $400 debit, which is also the deposit.
A customer buys 1 ABC Jan 50 Put @ $2 and sells 1 ABC Jan 60 Put @ $5 when the market price of ABC is $58. The customer must deposit:
A. $200
B. $300
C. $700
D. $1,000
C. $700
The customer has created a credit spread:
Sell 1 ABC Jan 60 Put @ $5
Buy 1 ABC Jan 50 Put @ $2
$3 Credit
The customer receives $300 in premiums for exposing himself to a potential 10 point ($1,000) loss on the options (obligated to buy at $60 unde
On the same day in a margin account, a customer buys 1 ABC Jan 45 Put @ $4 and sells 1 ABC Jan 60 Put @ $11 when the market price of ABC is $56. The customer must deposit:
A. $400
B. $700
C. $800
D. $1,500
C. $800
The customer has created a short put spread resulting in a $700 credit. This position is profitable if the market should rise (bullish). The positions set up as:
Sell 1 ABC Jan 60 Put @ $11
Buy 1 ABC Jan 45 Put @ $4
$7 Credit
If the market should
In an existing margin account, a customer buys 100 shares of ABC stock at $50 per share and 1 PDQ Nov 25 Call @ $5. What is the customer's margin call?
A. $500
B. $2,000
C. $2,500
D. $3,000
D. $3,000
In a margin account, the customer needs to deposit 50% of the purchase price to buy the stock and 100% of the purchase price to buy the calls. To buy $5,000 of stock, the Regulation T requirement is $2,500. To buy $500 of options, the Regulation
Portfolio margining:
I is based on the rules of Regulation T
II is based on probable loss potential
III generally results in lower margin requirements and greater leverage than standard margin calculations
IV generally results in higher margin requirement
C. II and III
Portfolio margin is a "risk" based margin method that gives substantially lower margin requirements for lower risk position. It is calculated using probability-based loss percentages. It recognizes that if positions are hedged, such as a sto
Portfolio margining:
I is suitable for unsophisticated investors
II is suitable for sophisticated investors
III requires a minimum account equity of $2,000
IV requires a minimum account equity of $100,000
A. I and III
B. I and IV
C. II and III
D. II and I
D. II and IV
The minimum equity to open a portfolio margin account for an individual customer is $100,000. This compares to the minimum equity requirement of $2,000 for a regular margin account. Portfolio margin can only be used by institutional or wealth
To open a portfolio margin account:
I the account must be approved for covered options writing
II the account must be approved for naked options writing
III minimum equity of $100,000 must be maintained
IV minimum equity of $1,000,000 must be maintained
A
C. II and III
The minimum equity to open a portfolio margin account for an individual customer is $100,000. This compares to the minimum equity requirement of $2,000 for a regular margin account. Portfolio margin can only be used by institutional or wealt
All of the following procedures are required to open a Portfolio Margin account EXCEPT:
A. the account must be approved by the designated ROP for uncovered options writing
B. the customer must receive a copy of the risk disclosure document at, or prior to
D. the account must be approved by the CBOE or FINRA for exemption from Regulation T margin requirements
FINRA requires that a portfolio margin account be opened as an options account that is qualified for naked options writing. This requires a more-detai
Which of the following positions would receive the greatest benefit of reduced margin requirements from portfolio margining?
A. Short naked call
B. Long stock/Long put
C. Short stock/Short put
D. Long call/Long put
B. Long stock/Long put
Portfolio margin is based on the risk of a portfolio, rather than applying a fixed margin percentage to each security position. When a stock position is hedged by an option, as is the case with a long stock/long put position, then t
Which TWO of the following positions would receive the greatest benefit of reduced margin requirements from portfolio margining?
I Long stock/Short call
II Long stock/Long put
III Short stock/Long call
IV Short stock/Short put
A. I and III
B. I and IV
C.
C. II and III
Portfolio margin is based on the risk of a portfolio, rather than applying a fixed margin percentage to each security position. When a stock position is hedged by an option, as is the case with a long stock/long put position or a short stock
Which of the following positions would receive the greatest benefit of reduced margin requirements from portfolio margining?
A. Short spread
B. Long spread
C. Short stock/Long call
D. Short stock/Short put
C. Short stock/Long call
Portfolio margin is based on the risk of a portfolio, rather than applying a fixed margin percentage to each security position. When a stock position is hedged by an option, as is the case with a short stock/long call position, th