Chapter 6 Practice Question Answers
- 1. Answer: A. Firms must disclose to customers how their business continuity plans address potential business disruptions and how they will respond to various events. This disclosure is required in writing at the opening of a customer account and must be posted on the firm’s website (if the firm has a website). The disclosure must also be mailed to customers upon request.
- 2. Answer: B. The minutes of partners’ and directors’ meetings must be kept for the lifetime of the firm. Memos of brokerage orders are kept for three years, while the general ledger must be kept for six years. Fingerprints of an associated person must be kept for three years after his employment is terminated.
- 3. Answer: D. Aggregate indebtedness is made up of a firm’s liabilities that are not secured by any of the firm’s assets. This includes accounts payable, loans that are backed by customer securities, and customer free credit balances. The ratio of aggregate indebtedness to net capital of an established firm cannot be greater than 15:1. The ratio of aggregate indebtedness to net capital of a first year firm cannot be greater than 8:1.
- 4. Answer: B. SEC Rule 15c3-3 pertains to the customer protection rule. Broker-dealers must segregate fully paid securities from excess margin securities. Excess margin securities consist of securities in margin that are in excess of the client’s debt by 140% or more. These two things must be kept physically separate and the broker-dealer must take action to ensure these two segregated items are kept safely.
- 5. Answer: C. Firms must file a FOCUS Report Part II or Part IIA quarterly by the 17th business day after the end of the quarter. Part I is filed monthly by carrying firms.
- 6. Answer: C. A material weakness is a deficiency in a broker-dealer’s controls that could reasonably prevent the discovery of inaccuracies in its reporting statements.
- 7. Answer: D. When necessary f