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17 Cards in this Set

  • Front
  • Back
Violation of Recommendations
- Excessive activity in customer accounts (churning)
- Trading in mutual fund shares which, by their nature are not suitable trading vehicles
- Fraudulent activities such as opening fictitious accounts to trade against firm recommendations or to buy hot new issues; use of discretion without authorization from the customer; unauthorized transactions in customer accounts; misuse of customers’ securities and funds; and securities transactions registered representatives that are concealed from their employer.
Transfer and Hold
securities transferred into a customer’s name and then held in segregation in the firm’s vault.
Transfer and Ship
securities transfer into the customer’s name and delivered to the customer. Such securities are no longer recorded on the firm’s records and the customer assumes full responsibility for them.
Held in “Street Name”
securities are registered in the name of the brokerage firm as nominee. Many securities are held in centralized depositories (e.g. Depository Trust Company). Securities are transferred on a book-entry basis.
It is a violation of the Securities Act of 1934 to mix the securities of a broker-dealer with those of customers
Death of Customer – Action Items
- Mark the account deceased and cancel all open orders placed by the customer but still waiting execution.
- The brokerage firm must freeze the assets in the account until it receives the necessary documents from the administrator or executor of the deceased customer’s estate.
- After receipt of the proper legal documents, the firm closes the deceased customer’s account and transfers the assets to an estate. Required documents:
Account Statements
- Broker-dealers are required to send quarterly statements for inactive accounts and typically send monthly statements for active accounts.
- Contains activity for the statement period, current long and short positions, debits and credits, and account balances.
- SEC regulations state that a brokerage firm must provide a current financial statement (balance sheet with net capital computation) to a customer upon request.
Transferring Account - Steps in the process
- Customer provides ritten transfer request to receiving firm
- Carrying firm validates transfer instructions
- Customer is informed of any nontransferable securities
- Carrying firms sends customer’s securities to receiving firm.
Trade Confirmation
1. The identity and price of the security bought or sold
2. The number of shares, units, or principal amount
3. The date of the transaction, as well as the time of execution (or a statement that the time will be furnished upon written request)
4. The capacity in which the broker-dealer acted (i.e. agent for the customer, agent for some other person, agent for both the customer and another party, principal for its own account
5. The dollar price and yield information on debt securities
6. Whether a security is callable
7. The settlement date
Not all markup need to be disclosed; two exceptions:
- Riskless principal transactions, in which the broker-dealer purchases the security for resale to the customer only when the customer’s order is already in hand
- Principal transaction in Nasdaq stocks or in listed stocks traded OTC (Rule 10b-10 of SEC for listed stocks, NASD for Nasdaq SmallCap securities)
SIPC Coverage
i. Maximum = $500,000 of which no more than $100,000 in cash. If the customer’s cash account exceeds $100,000 then the customer will become a general creditor in the bankruptcy proceeding, along with other customers or broker-dealers.
ii. If a customer has both cash and margin accounts, all her accounts are combined to determine the maximum amount of coverage that the investor receives.
iii. If the customer has a joint account with her spouse, the joint account is covered separately.
iv. Applies to public customers only. It does not apply to other broker-dealers who have securities at the failed broker-dealer.
SEC Regulation S-P
i. Requires all broker-dealers, investment companies, and investment advisers registered with the SEC to adopt policies and procedures reasonably designed to protect the privacy of the confidential information that they collect from their clients. They must also give their clients a description of these policies (a privacy notice).
Types of Clients
- Consumer: someone who provides information to the firm in connection with a potential transaction.

- Customer: someone who has an ongoing relationship with the firm
Privacy Notice
iii. Firms must furnish every customer with a privacy notice when the relationship is first established.

iv. The firm must give the customer an update version of this notice annually.
Current Transaction Reports (CTRS)
i. Broker-dealers are required to the file the CTRS (FinCEN Form 104) for all cash transactions by a customer during one business day that exceed $10,000
Currency and Monetary Instrument Transportation Reports (CMIRs)
i. Must be filed whenever anyone physically transports or receives cash in an amount of more than $10,000 into or out of the United States
Suspicious Activity Reports (SARs)
ii. SAR must be filed whenever a transaction (or group of transactions) equals or exceeds $5,000 and the firm suspects any of the following:
1. The client is violating federal criminal laws
2. The transaction involves funds related to illegal activity
3. The transaction is designed to evade the reporting requirements (structured transactions)
4. The transaction has no apparent business or other legitimate purpose and the broker-dealer cannot determine any reasonable explanation after examining all the available facts and circumstances surround the transaction.