Series 7 Chp 2

When must customer confirmations be sent?

By the completion of the transaction (usually the settlement date)

What does it mean for a client to use a prime brokerage account?

The client trades through multiple BDs, but has its trades cleared and settled with one prime BD

True or False: Using a P.O. Box as an address is not acceptable to open an account.

True. An actual address is required; however, mail may be sent to a P.O. Box.

A pattern day trader is someone who executes _____ or more day trades over _____ consecutive business days.

A pattern day trader is someone who executes four or more day trades over five consecutive business days.

For accounts opened for employees of another member firm, what is provided to the individual's employer upon request?

Duplicate confirmations and statements

What three items must be specified on a not held order?

Action (buy/sell), Amount (quantity), and Asset (security)

What happens to the deceased’s portion in a joint account with tenants-in-common?

The deceased's portion goes to his estate for tax purposes.

List some retirement accounts that have required minimum distributions.

Required minimum distributions apply to traditional IRAs, 401(k), 457, and 403(b) plans.

True or False: Principals must approve discretionary orders prior to entry.

False. The orders must be approved promptly afterward.

Identify the acronym: RMD

Required Minimum Distribution

What is the benefit of establishing a revocable trust?

It avoids probate.

True or False: FINRA regulates accounts of member firm employees opened at another firm.

True. The rule also covers accounts for the employee's spouse or dependent children.

True or False: A prime broker provides centralized clearing and custodial services, as well as consolidation of reports.

True. For margin customers, it also allows for the consolidation of positions resulting in lower interest costs.

_____________________________ protects customers from BD bankruptcy.

Securities Investor Protection Corporation (SIPC) protects customers from BD bankruptcy.

True or False: In a DVP transaction, payment is made by a client's agent when the securities are delivered and accepted.

True

When must insiders report their transactions?

Within 2 business days of the trade

What are the benefits of setting up an irrevocable trust?

It will reduce estate taxes and also avoid probate.

Both the ____________ and the ____________ are required for a corporation to open an options or margin account.

Both the Corporate Resolution and Corporate Charter are required for a corporation to open an options or margin account.

May a wife enter trades in a husband’s account?

Yes, with written third-party authorization.

Regulation S-P requires clients be provided with a ______________ detailing how BDs handle personal client information.

Regulation S-P requires clients be provided with a Privacy Notice detailing how BDs handle personal client information.

Who may enter orders in a joint account?

Any owner named on the account

True or False: Money may be withdrawn from a joint account in one owner's name.

False. Any checks should be in both parties' names.

Describe a wrap account.

An account that charges the client a single fee that covers transaction execution and account management

What list must be checked to identify suspected terrorists and criminals?

OFAC List (Treasury Department's Office of Foreign Assets Control)

True or False: Only one person must provide information to open a joint account.

False. Each owner must provide information to open a joint account.

A ___________________ is required to open an account for a partnership.

A Partnership Agreement is required to open an account for a partnership.

Individuals must register with the SEC within __________ of becoming an insider.

Individuals must register with the SEC within 10 days of becoming an insider.

Define an insider.

Officers, directors, partners, greater than 10% owners, and immediate family members of all listed

If a client seems confused and demands an unsuitable change of objective, what step should an RR take?

Confusion and/or dementia are concerns that may warrant an RR to request a meeting with the client and a family member.

What are some of the acceptable investments for IRA contributions?

Stocks, bonds, mutual funds, and CDs

Define vesting.

The right an employee gradually acquires by length of service at a company to receive employer-contributed benefits

What is the difference between a revocable and irrevocable trust?

Revocable trusts can be changed after they're established, while irrevocable trusts cannot be changed.

What is ERISA?

Employee Retirement Income Security Act

Explain a prime-brokerage arrangement.

A situation in which multiple BDs execute a client's trades and report them to one independent BD for settlement

What is needed to exercise discretion over a client’s account?

Written power of attorney

True or False: RRs are typically not permitted to lend money to a client.

True. While exceptions existing, personal loans to clients are typically prohibited.

If an RR suspects that a client may be showing signs of dementia, what is the best course of action?

To request a meeting with both the client and a family member

What may an RR do with full discretion, but not with limited discretion?

Withdraw money from the account

When must IRA withdrawals begin in order to avoid the late withdrawal penalty?

By April 1st of the year after an individual turns the age of 73

What happens to the deceased’s portion in a joint account with right of survivorship?

Her portion passes to the survivor.

Based on written instructions, a B/D may hold customer correspondence for _____ months.

Based on written instructions, a B/D may hold customer correspondence for three months.

Anyone with __________ income may contribute to an IRA.

Anyone with earned income may contribute to an IRA.

What program must be established by BDs to verify the identity of each customer opening an account?

Customer Identification Program (CIP)

True or False: All corporate officers may effect transactions for the corporation.

False, only those named in the Corporate Resolution

True or False: Names appearing on the OFAC List are customers who had a previous business relationship with the firm.

False. The list shows the names of suspected terrorists and criminals.

There is a ____% penalty for early withdrawals from an IRA.

There is a 10% penalty for early withdrawals from an IRA.

List some of the information to be included on a municipal customer confirmation.

Description, price and yield (lower of YTM or YTC), BD capacity (commission for agency), trade and settlement dates

What items are acceptable as proof of identity under the Customer Identification Program (CIP)?

Passport or driver’s license (both have a picture)

RRs must examine what document to open any corporate account?

Corporate Resolution

If a client refuses to provide certain information, may the account still be opened?

Yes, although name and address are required.

Define pattern day trading.

Executing four or more day trades over a five-day period

True or False: RRs are always prohibited from sharing in a customer's account.

False. RRs may share in a customer's account if they have permission and sharing is proportionate to their investment.

When an individual reaches age ______, they may begin withdrawing from an IRA without penalty.

When an individual reaches age 59 1/2, they may begin withdrawing from an IRA without penalty.

For how long may a not held order be maintained?

A not held order is considered a day order.

The ___________________ must sign the account form.

The supervising principal must sign the account form (clients are not required to sign).

Define churning

Excessive trading solely for the purpose of generating commissions or fees

A client executes seven day trades over a two-business-day period. Is this client a pattern day trader?

Yes. A pattern day trader executes four or more day trades over a five-day period.

A client executes three day trades over a five-business-day period. Is this client a pattern day trader?

No. A pattern day trader executes four or more day trades over a five-day period.

The __________ is the person who has fiduciary control over a trust.

The trustee is the person who has fiduciary control over a trust.

What must be done by the carrying firm when opening an account for an employee of another FINRA member firm?

The carrying firm must receive written consent from the employer

Define a prime broker.

A BD that clears and settles trades effected by one or more executing brokers at the direction of the customer

What regulation protects the non-public personal information of customers?

Regulation S-P

ERISA gave the U.S. Government jurisdiction over ___________________ plans.

ERISA gave the U.S. Government jurisdiction over private pension plans.

For a joint account, how many account numbers and SSNs are used for tax reporting?

One

What specialized services does a prime broker offer to its clients?

Custody, securities lending, margin financing, clearing, processing, research, customized reporting

Who is responsible for determining the suitability of orders placed in a discretionary account?

The individual placing the order

True or False: Clients need not sign the account form for a cash account.

True, but signature would be required for an option or a margin account.

True or False: Not held orders may only be executed in a discretionary account.

False. Discretionary power of attorney is not required.

How are withdrawals from Roth IRAs treated for tax purposes?

Withdrawals are tax-free if the account is open for at least five years and is not considered an early withdrawal.

Is discretionary authorization required to enter a not held order?

No, since discretion is limited to time and/or price for not held orders.

Churning is described as _____________________ designed to _____________________.

Churning is described as excessive trading designed to generate commissions.