ch 15

Question 1

trade confirmation

Answer 1

• document that confirms a trade of a security
• on the far is the amount of money due from or owed to the customer
• settlement date: includes the date money changed hands
• contains:
  
  • whether member acted as agent or principal or dual agent (rep both sides of the trade
  • source and amount of commission
  • if there is a control relationship
  • deferred sales load (if any)
  • markup or markdown charged to retail customers when acting in a principal capacity
  • identity of the share/units, price, # of shares
    - total par value of the rate of debt securities
    - accrued interest in a trade of debt securities
    
    • if the member is a market maker
      
      • date and time of the transaction execution or state that it will be furnished upon request
    • lower of yield to call or yield to maturity when a transaction in a debt security is done on a yield or dollar basis
      
      • handling fees or mailing charges (if applicable)

Question 2

confirmation delivery

Answer 2

• customer must be sent or given a written confirmation of the trade at or before the completion of the transaction (settlement date)
• must be retained for 3 years

Question 3

when, as, and if issued contracts (when issued trades)

Answer 3

• new muni bonds issues are sold to investor before the bonds are issued and available for delivery.
• investor gets a when issued confirmation
• doesn’t include a total dollar amount or settlement date bc those are unknown
• doesn’t include accrued interested so total dollar amount is not shown
• once the bonds are issued, the customer gets a new confirmation with purchase price and settlement date
• must include: description of security, purchase price (dollar bond) or yield (serial bond), trade date

Question 4

electronic delivery

Answer 4

• can electronically send docs like confirmations
• must have procedures to that the info was delivered as intended and that the confidentiality and security of personal info are protected
• customer must provide written consent to get electronic delivery
• customers can be provided paper copies upon request

Question 5

customer account statements

Answer 5

• required to be sent at least quarterly
• penny stocks are sent monthly even when there is no activity
• positions shown are at current market value
• if illiquid instrument like a DPP and unlisted REIT, must provide a per share estimated value

Question 6

net investment

Answer 6

• based on the amount available for investment percentages in the estimated use of proceeds section of the offering prospectus

Question 7

appraised value

Answer 7

-per share estimated value reflecting an appraised valuation
- for DPP and unlisted REIT, performed at least annually by a third party
- derived from methodology that conforms to standard industry practice

Question 8

disclosures

Answer 8

• each January member must send statements to customers showing a summary of all interest and dividends credited to the account as well as the gross proceeds off all sales made the prior year
• Form 1099
• for joint accounts, the statement is sent to the person whose SS # is on the account

Question 9

updating customer account info

Answer 9

• retail customers who opens a new account must within 30 days of the opening the account get a copy of the account record
• ensure the info is correct
• member firm must send a copy of the account record every 36 months thereafter
• customer must notify firm of any changes (name, address, investment objectives), firm must send updated account record within 30 days
• BD’s must retain records of all the ID info for 5 yrs after the account is closed
• records made about CIP into verifying a customer’s identity must be rained for 5 yrs after the account is made
• accounts acquired through acquisition are not subject to customer ID procedures

Question 10

transferring customer accounts between member firms

Answer 10

• customer must sign a transfer form called the broker to broker transfer instruction form (TIF)
• automated customer account transfer service (ACATS) automates and standardizes raw procedure for a transfer
• once received by the carrying firm (the one losing the account) they have 1 business day to validate the securities listed on the TIF or take exception to the instructions
• if no exceptions, the carrying firm must complete the transfer of the account within 3 business days following validation

Question 11

following a reg rep from one member firm to another

Answer 11

• disclosures must be provided in edu material such as
  
  • potential conflict of interest from financial incentives the rep gets
  • some assets may not be directly transferable and may incur costs/fees
  • potential costs related to different pricing structures and fees
  • different products and services
• communication is required at the time of contact with the former customer by the reg rep or member firm
• can be written, electronic or oral (if oral, materials must be provided no later than 3 business days following contact)
• delivery of communication applies for 3 months following the date the reg rep begins employment
• this rule only applies to natural persons not institutional accounts

Question 12

SEC rule 17a-3 and SEC rule 17a-4

Answer 12

• SEC rule 17a-3: lists records that need to be kept
• address what records must be kept, when such records must be prepared and retained
• all records must be kept in a readily accessible place for 2 years

Question 13

written customer complaints

Answer 13

• must be kept for 4 years

Question 14

lifetime record

Answer 14

• stock cert book
• partnership agreement or articles or incorporation
• minutes of board or partnership meetings

Question 15

6 year records

Answer 15

• blotters
• general ledger
• stock ledger
• customer ledgers
• customer account records
• designated principals

Question 16

3 years records

Answer 16

• all other records
• FOCUS reports
• Trial balances (prepared at least monthly)
• Forms U4 and U5
• fingerprint cards
• confirmation of trades
• order tickets
• security and cash loan records
• failed to receive and failed to deliver records
• long and short securities differences

Question 17

trade blotter

Answer 17

• records of original entry receipts and delivers.
• include cash received/disbursed, securities received/delivered, ID of securities bought/sold.
• would NOT include customer info or settlement dates.
• must be posted no later than the 1st business day following the activity
• retained for 6 yrs

Question 18

general ledger

Answer 18

• retained for 6 yrs
• accounting records of assets, liabilities, and net worth
• prepared at least monthly

Question 19

stock ledger

Answer 19

• retained for 6 yrs
• stock owned by the firm and where held
• posted the business day after settlement

Question 20

customer ledger

Answer 20

• retained for 6 yrs
• statement for cash and margin accounts
• posted no later than settlement date

Question 21

customer account records

Answer 21

• retained for 6 yrs
• new account forms, margin agreements, other customer info and agreements

Question 22

designated principals

Answer 22

• retained for 6 yrs
• record for each office listing, by name or tiles, each person who without delay can explain the types of records the firm maintains at that office and info contained in these records

Question 23

death of an account holder

Answer 23

• firm must cancel all open orders, marked the account deceased ad freeze the assets until receiving instructions and necessary documentation form the executor of the estate
• if there was third party power of attorney the authorization is revoked
• discretionary authority ends at the death of the account owner
• documents needed: certified copy of death certificate, inheritance tax waivers, letters testamentary

Steps
1) cancel open orders
2) freeze account
3) await instructions

Question 24

holding customers mail

Answer 24

• member firms can hold customer mail with written instructions that include time period (up to 3 months unless longer period has been requested), member firm informs the customer of alternative methods to monitor account activity, member checks periodically that the instructions still apply
• firm must be able to communicate with customer while holding mail
• courtesy and note required

Question 25

approval and documentation of changes in account name or designation

Answer 25

- change must be authorized by a reg principal

Question 26

AML Compliance

Answer 26

- FINRA rule 3310 requires member firms to develop, implement and monitor AML programs designed to achieve compliance with the Bank Secrecy Act and other regulations - AML program must be approved in writing by a senior manager - if the approving manager leaves, program should be reapproved any the new manager - detect and cause the reporting of transactions that raise suspicion of money laundering - designated people responsible for implementing and monitoring daily ops and internal controls of the program - provide ongoing training

Question 27

currency transaction report (CTR)

Answer 27

- BDs must report on FinCEN form 112 any currency deposited or received in excess of $10,000 on a single day - reporting of wire transfer of 3,000 or more - failure to report can result in fines up to 500,000, 10 years in prison or both - record retention for Form 112 is 5 yrs - form 112 must be filed within 15 days of receipt of the currency - federal reserve and dept of treasury are empowered to deal with money laundering issues

Question 28

AML Compliance program

Answer 28

- internal procedures to detect abuse - red flags like - lack of concern regarding risks, commissions, or other costs - attempting to make frequent or large deposits of currency or cashier's checks - making a large # of wire transfers to unrelated third parties - engaging in excessive transfers between unrelated accounts - structuring deposits/withdrawals to fall under the 10,000 cash transaction report filing threshold