S-12 Client Relations and Account Management 2 — Questions and Answers
Question 1: In a margin account, the initial margin requirement set by Regulation T for purchasing most equity securities is:
- 25%
- 50% (Correct answer)
- 75%
- 100%
Correct answer: 50%
Regulation T, established by the Federal Reserve Board, requires customers to deposit at least 50% of the purchase price when buying securities on margin.
Question 2: A customer complaint alleging forgery or misappropriation of funds must be reported to FINRA within:
- 5 business days (Correct answer)
- 10 business days
- 30 calendar days
- 60 calendar days
Correct answer: 5 business days
FINRA Rule 4530 requires broker-dealers to report certain customer complaints involving theft, misappropriation, or forgery within 5 business days.
Question 3: Which account type is established under the Uniform Transfers to Minors Act (UTMA) and is managed by a custodian for a minor beneficiary?
- 529 plan
- UGMA/UTMA custodial account (Correct answer)
- Coverdell Education Savings Account
- Minor Roth IRA
Correct answer: UGMA/UTMA custodial account
UTMA accounts allow adults to transfer assets to a minor, managed by a custodian until the minor reaches the age of majority.
Question 4: If a customer has a 'cash account' and fails to pay for a purchase within the required settlement period, the broker-dealer must:
- Automatically extend margin to the customer
- Freeze the account for 90 days
- Liquidate the position and restrict the account from free-riding (Correct answer)
- Report the customer to the SEC
Correct answer: Liquidate the position and restrict the account from free-riding
Under Regulation T, failure to pay in a cash account results in liquidation of the position and a 90-day restriction preventing the customer from buying and immediately selling without settled funds.
Question 5: A registered representative who recommends excessive trading in a customer's account to generate commissions is engaging in:
- Scalping
- Churning (Correct answer)
- Front running
- Spoofing
Correct answer: Churning
Churning is the practice of excessively trading a customer's account primarily to generate commissions, which violates FINRA rules and constitutes a breach of fiduciary duty.
Question 6: When a customer provides 'investment objectives' during account opening, which of the following is typically the most conservative objective?
- Growth
- Speculation
- Capital preservation (Correct answer)
- Aggressive growth
Correct answer: Capital preservation
Capital preservation focuses on protecting principal with minimal risk, making it the most conservative of standard investment objectives.
S-12 Client Relations and Account Management 2
In a margin account, the initial margin requirement set by Regulation T for purchasing most equity securities is: