Understanding The Securities Industry

How To Understand The Securities Industry On The Series 99 Exam
and become an Operations Professional

One of the keys to passing the series 99 exam is to make sure that you have a complete understanding of how the securities industry concepts will be tested on the Series 99 Exam. This article which was produced from material contained in our series 99 textbook and will help you master the material so that you pass the series 99 exam.

Introduction

Prior to opening an account for any new customer, a registered representative must complete and sign a new account form. Account ownership is divided into five main types:

• Individual
• Joint
• Corporate
• Trusts
• Partnership

The registered representative should try to obtain as much information about the customer as possible. The representative should obtain:

• Full name and address
• Home and work phone numbers
• Social security or tax ID number
• Employer, occupation, and employer’s address
• Net worth
• Investment objectives
• Estimated annual income
• Bank/brokerage firm reference
• Whether the customer is employed by a bank or broker dealer
• Any third-party trading authority
• Citizenship
• Legal age
• How account was obtained
• Whether client is officer, director, or 10% stockholder of a publicly traded company.

All new accounts must be accepted and signed by a principal of the firm. The principal must accept the account in writing for the firm either before or promptly after the first trade is executed. The principal accepts the account by signing the new account card. The representative also must sign the new account card as evidence that they introduced the account to the firm. The customer never has to sign anything to open a new cash account. Some firms have the customer sign a customer agreement when they open a new account, but this is not required. The customer agreement will state the policies of the firm and will usually contain a pre-dispute arbitration clause. The pre-dispute clause requires that any potential dispute arising out of the relationship be settled in binding arbitration. The pre-dispute arbitration clause must be presented in a certain format and include:

• A disclosure that arbitration is final and binding
• A disclosure that the findings of the arbitrators are not based on legal reasoning.
• The discovery process is generally more limited than the discovery process in a legal proceeding.
• The parties are waiving their right to a jury trial
• The customer must be provided with a copy of the pre-dispute clause and must verify its receipt with a signature.
• A disclosure that a minority of the arbitration panel will be affiliated with the securities industry.
• If the pre-dispute clause is contained in the customer agreement, there must be a highlighted disclosure just above the signature line.

A firm may also have the customer sign a signature card. A signature card will allow the firm to verify the customer’s written instructions that are sent in to the firm or the fund sponsor. A copy of the information collected on the customer’s account must be sent to the customer within 30 days of account opening or with the next statement. Firms must also reconfirm the customer’s information no later than 36 months from the time the information was last sent to the customer. The information must contain the customer information that was collected at the time the account was opened, as well as the definitions of the terms used to describe investment objectives. Any changes in the customer’s investment objectives, name, or address must be confirmed within 30 days or when the next statement is sent. Customers who do not wish to disclose financial information may still open an account if there is reason to believe that the customer can afford to maintain the account. All registered representatives should update the customer’s information regularly and note any changes in the following:

• Address
• Phone number
• Employer
• Investment objectives
• Marital status

Registered representatives are also required to maintain an accurate and up-to-date listing of all of their customer’s transactions and investment holdings.

Holding Securities

When an investor opens an account, they must decide where they want their securities to be held. The following methods are available:

• Transfer and ship
• Transfer and hold in safekeeping
• Hold in street name

Transfer and Ship

Securities that are to be transferred and shipped will be registered in the customer’s name and will be sent to the customer’s address of record.

Transfer and Hold in Safekeeping

Securities that are to be transferred and held in safekeeping will be registered in the customer’s name and will be held by the brokerage firm. The broker dealer may charge a fee for the safekeeping of the securities.

Hold in Street Name

Securities that are held in street name are registered in the name of the brokerage firm as the nominal owner of the securities and the customer is the beneficial owner. Most securities are held in this manner to make transfer of ownership easier.

Also at this time, the customer will decide what they want to do with the distributions from the account. Investors may have the distributions sent directly to them or they may have them reinvested or swept into a money market account.