How To Master Advanced Operational Concepts 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 advanced operational 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.


Customer Confirmations

All customers must be sent a confirmation at or before the completion of the transaction. Industry rules consider the completion of the transaction to be the settlement date. For buyers of the security, it is the time when the payment is made. If the customer has the funds available in the account, it is the time when the funds are moved through a book�keeping entry. For the seller, it is the time when they deliver the security. If the security is delivered prior to its due date, completion will occur when the payment is credited into the account. It is unlawful to settle a transaction without having sent a confirmation of the transaction to the customer. All customer confirmations must include:

  • Customer’s name and account number
  • Description of the transaction, such as buy or sell
  • Trade date and settlement date
  • Number of shares, bonds, or units
  • Price
  • CUSIP number
  • Amount due or owed
  • Commission charged for agency transactions
  • Mark up charged for riskless principal transactions
  • Markup charged for principal transactions in NASDAQ GLOBAL MARKET and third market trades (“reported securities”) as required under SEC Rule 10b-10
  • Markup charged for NASDAQ Capital market securities stocks under FINRA rules
  • Transactions executed for a customer on a “net transaction” basis only show the net price and not the mark up or mark down
  • Yield information for bonds
  • If bonds or preferred stock is callable
  • Whether the firm acted as an agent or principal
  • Whether the firm acted as agent for the other side of the transaction�known as “dual agency”
  • Amount of commission or markup or markdown
  • If the firm makes a market in the security
  • If there is a control relationship between the firm and the issuer of the security
  • Information regarding where the transaction was executed
  • If the firm received payment for executing the order with another firm
  • The time of execution or a statement that the time will be furnished upon request

If the customer requests additional information within 30 days of the transaction, as detailed on the confirmation, the firm has five business days to provide it. If the customer’s request is made after 30 days the firm may take up to 15 days to provide the information. If the firm receives payment for executing orders with other firms (payment for order flow) the firm must disclose this at the time the customer opens the account and annually thereafter.

Rules for Good Delivery

All securities delivered by a customer or another broker dealer must be in good condition and must:

  • Be signed by all owners and all owners must be alive
  • Be in the correct denominations, such as number of shares or par value of bonds
  • Have all attachments
  • Be accompanied by a uniform delivery ticket

The owner of a security must endorse the certificate at the time of sale to ensure its negotiability or may sign a stock or bond power, also known as a power of substitution. The stock power, when attached to the certificate, will make it negotiable and includes an irrevocable power of attorney. All signatures must be accepted by the transfer agent. To ensure that the transfer agent accepts the signatures on certificates delivered by NYSE member firms, the NYSE started the Medallion Signature Guarantee Program, which allows NYSE members to stamp the certificates with a medallion rather than sign them. This stamp ensures that the transfer agent will accept the certificates for transfer, and provides indemnification insurance for fraud. The Medallion Program members pay to participate.

Examples of invalid signatures are:

Examples of invalid signatures are:

  • The signature of a minor
  • The signature of a deceased person
  • The signature of only one owner if jointly registered
  • A forged signature

Rejection of Delivery

The buying firm may reject the delivery of securities from the selling member if:

  • The certificates are mutilated
  • The certificates are not in the proper denominations
  • All attachments are not present
  • The signatures are invalid
  • The signatures have not been guaranteed
  • The securities are delivered prior to settlement
  • The wrong securities are delivered
  • If the specific bond being delivered has been called and was not identified as being called at the time of the trade

Reclamation

The buying firm may reject the delivery of securities from the selling member if:

A Broker dealer may return or demand the return of securities previously accepted for delivery through a process known as reclamation. A broker dealer using the reclamation process must make the demand by submitting a Uniform Reclamation Form to the contra broker dealer. The reasons for rejecting delivery listed above are also valid reasons for instituting the reclamation process.

Marking To The Market

A broker dealer who has an open contractual commitment to another broker dealer will monitor the market value of the securities involved relative to the contract or trade price. This process is known as marking to the market. A broker dealer who is partially unsecured can issue a call or demand for more collateral. If a firm sends a mark to the market demand to another broker dealer, the demand must be met promptly.

Example:

If a broker dealer borrows $20,000 worth of securities for a customer who is executing a short sale for $20,000 worth of ABC, the borrowing broker dealer would have to deposit $20,000 with the lending broker dealer as collateral for the securities. If the market value of ABC increases to $25,000 the broker dealer who loaned the securities may demand that the borrowing broker dealer deposit an additional $5,000 as collateral. Alternatively if the market value of ABC had fallen to $15,000 the borrowing broker dealer may demand a return of $5,000.

Customer Account Statements

A customer must receive a statement every month in which there is activity in the account. All customers must receive account statements at least quarterly when there has been no activity in the account. Examples of activity include:

  • Purchases and sales
  • Dividend and interest received
  • Interest charged
  • Addition or withdrawal of cash or securities

Customer account statements must show:

  • All positions in the account
  • All activity since the last statement
  • All credit and debit balances

Brokerage firms are required to disclose their financial condition to their clients by sending them a balance sheet every six months or on the request of a customer with cash or securities on deposit.