Series 63 Section 4

The flashcards below were created by user SeanWalden1010 on FreezingBlue Flashcards.

    May not engage in a pattern of unjustifiable delays in the delivery of securities purchased by any of their customers or in unreasonable delays in the payment to customersw of any funds due upon completion of a transaction.
    May not induce trading in a customer's account which is excessive in size or frequency in view of the financial resources and character of the account. Excessive trading in order to generate comissions without regard to the customer'sbest interests is an unlawful practice known as "churning."
    MAY NOT recommend to a customer the purchase or sale of any security without reasonable grounds to believe that such transaction is suitable for the customer based upon the customer's investment objectives, financial situation, and needs. The most important criteria in establishing suitability is the customer's investment objectives. If a customer has not furnished the information needed to determine suitability, no recommendations may be made and only unsolicited orders may be executed.
    MAY NOT execute a transaction on behalf of a customer without the authorization to do so. Orders may never be taken from anyone other than the customer unless it is a joint account or the customer has granted third party trading authority to his or her spouse.
    MAY NOT exercise any discretionary power in effecting a transaction for a customer without first obtaining written discretionary authority from the customer unless the discretionary power relates solely to the time and/or price for the executing of orders. Discretionary authority requires the firm to first have a written power of attorney from the customer unless the discretion exercised is related only to the timing or price of the trade. In other words, the firm needs written discretionary authority for the amount and type of security purchased or sold on behalf of a customer but not for timing or price. This is because most trades are done as soon as possible at the current market price.
    MAY NOT execute any transaction in a margin account without securing from the customer a properly exected, written margin agreement promptly after the initial transaction in the account.
    MAY NOT co-mingle a customer's securities with those owned by the firm. A customer's free securities and securities belonging to customers that are held in safekeeping by the firm must be segregated and kept separately from those securities owned by the firm.
    MAY NOT hypothecate a customer's securities without having a lien thereon unless the firm secures from the customer a properly executed written consent promptly after the initial transaction. To "hypothecate securities" means to pledge them as collateral for a loan in a margin account.
    MAY NOT enter into a transaction with or for a customer at a price not reasonably related to the current market price of the security or receive an unreasonable commission or profit. Broker-dealers must make every effort to execute transactions on the behalf of customers at the best possible price available and may not charge excessive commissions or mark-ups. For example, if a broker-dealer firm is acting as a market maker in an OTC stock, its bid and ask prices should be reasonably related to the current market prices quoted by other dealers in that stock. Further, on non-NASDAQ OTC stocks, which are often low value or penny stocks, dealers must disclose their compensation to customers both at the time of the sale and with the confirmation.
    MAY NOT fail to furnish a customer purchasing securities in an offering either a final prospectus or a preliminary prospectus and an additional document, which together include all information set forth in the final prospectus, no later than the due date of the confirmation of the transaction. The latest time a final prospectus may be delivered is with the confirmation, which is mailed out the next busines day following the trade date.
    MAY NOT charge unreasonable fees for services performed including the collection of dividends or interest, the transfer of securities, or the safekeeping and custody of customer's securities
    MAY NOT offer to buy from or sell to any person any security at a stated price unless the firm is prepared to do so. Firms acting as market makers in the OTC market must honor their published bid and ask price quotations, which are normally for at least 100 share round lots of stock.
    MAY NOT represent that a security is being offered to a customer at the market unless the broker-dealer knows that a market for such security exists other than the market made, created, or controlled by such broker-dealer. If a broker-dealer is the only market maker for a security, he or she cannot offer to buy or sell securities from customers at the market price since he or she controls it.
    MAY NOT guarantee a customer against loss in any securities account or in any securities transaction. For example, a broker-dealer firm cannot sell a customer a security and promise to buy it back at the price the customer paid if it goes down in value.
    MAY NOT use any advertising or sales presentations in such a fashion as to be deceptive or misleading. Broker-dealers may not distribute any non-factual data that is designed to supersede or defeat the purpose of any prospectus or disclosure. Information in a prospectus may not be highlighted to imply that some information is more important than the other information
    MAY NOT fail to disclose that the broker-dealer is controlled by, affiliated with, or under common control of the issuer of any security before entering into any contract with a customer for the purchase or sale of such issuer's securities. For example, a customer enters an order with a broker-dealer to buy or sell stock of a particular corporation. If the broker-dealer firm is owned by or controlled by that corporation, that fact must be disclosed to the customer in writing due to the conflict of interest involved. 
    MAY NOT fail to make a bona fide public offering of all of the securities allotted to the broker-dealer for distribution whether acquired as an underwriter, syndicate, or selling group member. Hot issues of new securities must be sold to the public and may not be withheld for the purpose of obtaining a free ride.
    MAY NOT fail or refuse to furnish a customer, upon reasonable request, information to which he or she is entitled or fail to respond to a written request or complaint. Broker-dealers must respond to all written complaints and reasonable requests. A "complaint" is defined as any written grievance.
  19. AGENTS
    MAY NOT engage in the practive of lending or borrowing money or securities from a customer or acting as a custodian for money, securities, or an executed stock power of a customer. Agents may never lend money  to or borrow money from a customer.
  20. AGENTS
    MAY NOT effect securities transactions not recorded on the regular books or records of the broker-dealer which the agent represents unless the transactions are authorized in writing by the broker-dealer prior to the execution of the transaction. For example, an agent who wants to capitalize his or her new firm by selling stock outside his or her broker-dealer and then notifying the broker-dealer that he or she did so would be in violation since prior authorization is required. 
  21. AGENTS
    MAY NOT establish or maintain an account containing fictitious information in order to execute transactions which would otherwise be prohibited. For example, if a customer resides out of state, an agent could not use the customer's vacation home address in this state on the new account form. In order for an agent to do business with a customer who is a resident of another state, the agent must be registered in the customer's home state. Agents must be registered in every state in which they transact securities. Of course, an agent cannot register in a state unless his or her broker-dealer is also registered in that state.
  22. AGENTS
    MAY NOT share directly or indirectly in the profits or losses in the account of any customer without the written authorization of the customer and the broker-dealer that the agent represents. Although an agent may never borrow or lend money to a customer, agents may open a joint account with a customer as long as they have the written authorization of the customer and their employing broker-dealer firm.
  23. AGENTS
    MAY NOT divide or otherwise split commissions from the purchase or sale of securities with any person not also registered as an agent for the same broker-dealer or for a broker-dealer who is under direct or indirect common control. An agent could not split commissions with a CPA unless the CPA was also registered as an agent for the same broker-dealer firm or another broker-dealer firm who is under the same direct or indirect common control.
    Recommending to a client the purchase or sale of any security without reasonable grounds to believe that such a recommendation is suitable based upon the client's investment objectives. Recommendations must be suitable for the client on the basis of information furnished by the client after reasonable inquiry concerning the client's investment objectives, financial situation, needs, and any other information known by the adviser. Most suitability information is contained in the new account form.
    Exercising any discretionary power in placing an order for a client without first obtaining written discretionary authority from the client within 10 business days after the date of the first transactions placed pursuant to oral discretionary authority unless the discretionary power relates solely to the price at which or the time when an order involving a definite amount of a specified security shall be executed. 
Card Set:
Series 63 Section 4
2012-08-18 00:10:51

Business Practices
Show Answers: