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9 Cards in this Set
- Front
- Back
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A registered representative is opening both cash and margin accounts for a corporation. Which of the following documents will he need?
1. The corporation's charter, account resolution and bylaws. 2. A copy of the corporation's most recent balance sheet. 3. The corporation's last 3 profit & loss statements. 4. The name(s) of natural persons authorized to trade on the account. |
Answer: 1 & 4
Corporate accounts are generally those established by the officers of a corp. Such accounts require a copy of the corporate resolution naming the authorized persons and account trading limits (if any). If it is to be a margin account, a copy of the corporate charter and a signed margin agreement are also required. |
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Which of the following statements regarding a discretionary account is NOT true?
A) A principal must accept the account in writing. B) A principal must review all account activity, frequently. C) A principal must review all trades in the account promptly after execution. D) Securities in a discretionary account may not be rehypothecated. |
Answer: D
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. |
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Your customer is interested in a product that offers part principal protection like a debt instrument, but has return that is partly based on the return of a single stock or a basket of stocks like an index. Such products are known as:
A) Equity-linked notes (ELNs) B) Real Estate Investment Trusts (REITs) C) Direct Participation Programs (DPPs) D) Treasury Bonds |
Answer: A
ELNs or Index-linked notes are debt instruments that in one variation can offer some principal protection (known as principal-protected) as well as a final payment that is based on the return of a single stock or a basket of stocks. Some ELNs are exchange traded but not all. |
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All of the following are characteristics associated with equity-linked notes (ELNs), EXCEPT:
A) They are equity securities. B) They can be exchanged traded or traded OTC C) They have final payments at maturity linked to the return of an underlying stock or basket of stocks. D) They are considered to be nonconventional structured investments. |
Answer: A
Despite their name, ELNs are debt instruments, NOT equity instruments. They have a partial fixed return as well as a final payment linked to the performance of a single stock or equity index. Some are exchange traded while others trade OTC. FINRA, who considers ELNs to be nonconventional structured investments has expressed concerns that investors might not fully understand ELNs or the risks associated with them. |
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Which of the following are governed by the prudent investor rule?
1. Trustee 2. Executor 3. Custodian 4. Registered Rep who has been granted discretionary authority. |
Answer: 1, 2, 3 & 4
The prudent investor rule applies to fiduciary accounts, or account in which someone is acting on someone else's behalf. In these accounts, the fiduciary must act prudently. A registered rep who has been granted discretionary authority is acting in a fiduciary capacity. |
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If a RR is opening a brokerage account for a partnership, in which order, from first to last, would the following events ordinarily take place?
1. RR obtains partnership agreement. 2. Principal gives written acceptance of the account. 3. RR fills out new account card. 4. First trade is executed. |
Answer: 3, 1, 2, 4
When a RR opens a new account, the first step is to complete the new account form. In the case of a partnership account, a principal of the firm must see a copy of the partnership agreement before accepting the account. When the account has been accepted by the principal, trades may be entered. |
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A customer will be leaving the country and asks his Rep to watch his account. If his positions begin to decline in value, the RR should: A) Talk to his manager. B) close out the positions C) write covered calls against the position D) buy protective puts to reduce losses |
Answer: A
The RR may only place an order if the account owner has granted him discretionary authority. |
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A POA is not required for RR to choose which of the following order instructions?
1. Security to be bought/sold 2. Number of shares to be bought/sold 3. Time of execution 4. Price of execution |
Answer: 3 & 4
If a RR chooses price or timing of an order only, that order is not a discretionary order and a POA is not required. The order is a not-held order. |
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A RR who learns of a customer's death should:
A) notify FINRA. B) accept no orders to buy or sell securities unless coming from a third party POA. C) cancel open orders. D) liquidate the account. |
Answer: C
When a RR learns of a customer's death, he must mark the account deceased, cancel all open orders and await the appropriate legal documents. He must not attempt to transfer or otherwise dispose of the assets nor can any orders be taken for the account. Third party POA auth is revoked immediately upon death of the accountholder.
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