Chapter 3 Practice Question Answers
1. Answer: B. According to SEC Rule 10b-10, a brokerage company must send a trade confirmation to its customers at or before the completion of the transaction. When a customer purchases a security through a broker-dealer, the completion of the transaction is the later of when the customer pays the broker-dealer and when the broker-dealer delivers the security to the customer. When a customer sells a security, the completion of the transaction is the later of when the customer delivers the security to the broker-dealer and when the broker-dealer pays the customer.
2. Answer: D. The broker-dealer must send written notification of certain information to the customer at or before completion of a transaction. This information is provided in the customer trade confirmation. This information includes date and time of transaction, name and price of security, number of shares involved in the transaction; whether the broker-dealer was acting as agent for customer, as agent for some other person, as agent for both the customer and some other person, or as a principal for its own account; and whether the broker-dealer (if acting as principal) is a market maker in the security. Also, whether the broker-dealer receives payment for order flow and if the broker-dealer is not a member of SIPC.
3. Answer: A. SEC Rule 10b-10 is concerned with commissions, markups, and markdowns, but not the market or exchange that the security is traded on. Rule 10b-10 is also concerned with the capacity of the broker-dealer—if it acted as agent, principal, or in a dual-agency capacity.
4. Answer: D. For mutual fund securities that are purchased through an investment company plan, a written confirmation is not always required. However, the broker must provide the customer with a written statement disclosing the required confirmation information within five business days after the end of each quarterly period. To do this, the broker must have delive