Customer Accounts and Suitability Flashcards

What is a Uniform Gifts to Minors Act (UGMA) account?

Answer: A custodial account holding assets for a minor, managed by an adult custodian

A UGMA account is a custodial account where an adult manages assets on behalf of a minor until the minor reaches adulthood.

A margin call is issued when:

Answer: The equity in a margin account falls below the maintenance margin requirement

A maintenance margin call requires the customer to deposit additional funds when account equity drops below the maintenance requirement.

Under FINRA's Best Execution rule, broker-dealers must:

Answer: Seek the most favorable terms reasonably available for customer orders

Best execution requires broker-dealers to use reasonable diligence to find the most favorable terms for customer order execution.

What is a power of attorney (POA) in a brokerage account context?

Answer: A written authorization for a third party to act on the account owner's behalf

A power of attorney authorizes a designated person to make investment decisions and transactions for another person's account.

SIPC (Securities Investor Protection Corporation) protects investors against:

Answer: Broker-dealer insolvency and missing customer assets

SIPC covers up to $500,000 (including $250,000 in cash) per customer if a member broker-dealer becomes insolvent.

A pattern day trader is defined as someone who executes how many or more day trades within five business days?

Answer: 4

FINRA Rule 4210 defines a pattern day trader as any customer who executes four or more day trades in five business days in a margin account.