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 must be made in writing when a customer opens an account with the firm, and it must also 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 must be kept for at least three years, while the general ledger must be kept for at least six years. Fingerprints of an associated person must be kept a minimum of three years after the person’s 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. In calculating the net capital requirement for broker-dealers, the SEC allows for a discount to the market value of the securities held by the firm. This discount is known as a haircut. For commonly traded equity securities (e.g., exchange-traded securities), the SEC’s net capital rule allows firms to take a 15% haircut on their inventory of securities. Fifteen percent of $25,000 is $3,750.
5. Answer: C. All brokerage firms must file a FOCUS Report Part II or Part IIA quarterly by the 17th business day after the end of the quarter. Carrying firms must also file Part I each month.
6. Answer: A. If an independent public accountant finds that a broker-dealer is not in compliance with the financial responsibility rules o