account opening. introduction process of opening accounts still very similar disclosure statement...
Post on 01-Apr-2015
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Account Opening
Introduction
• Process of opening accounts still very similar
• Disclosure statement required
• Written approval/disapproval
Disclosure Statement
• Standardized Disclosure Statement– Drafted by NFA, NASDR, and other SROs
• NFA Compliance Rule 2-30(b)– Amended to require Member to provide it
at or before approval of account to trade security futures (SF)
Disclosure Statement
• For existing clients – Member can give it before or when they
approve account to trade security futures
• Member does not have to get acknowledgement of receipt– Must be able to demonstrate that Member
has provided SF disclosure statement to the customer
Disclosure Statement
• Content of SF disclosure statement:– Risks of SF transactions– Description of security futures– Margins– Customer account protection– Other issues such as corporate events
Segregation vs. SIPC
• Final rules have not yet been issued
• Under currently proposed rules : – FCM Notice Registered Broker-Dealers:
• Customer will not have a choice as to the type of account
• Automatically defaults to a futures account
– Fully Registered Broker-Dealer FCM:• Customer will have a choice between
futures and securities account
Segregation vs. SIPC
• Under the proposed rules a Fully Registered Broker-Dealer FCM would be required to:– Establish written policies stating how
customer positions will be held,
– Make certain disclosures to customers regarding the nature and applicability of the protections that may be available to customers, and
Segregation vs. SIPC
– Obtain a signed acknowledgement from each customer stating that the customer understands
• Which regulatory scheme governs the account, and
• That the account will not be protected under the alternative regulatory scheme
Customer Account Information
• Additional customer information required under NFA Compliance Rule 2-30(c)(5)-(9)– (5) Whether the customer account is for
speculative or hedging purposes
– (6) Customer employment status (name of employer, self-employed, retired)
– (7) Customer’s estimated liquid net worth (cash, securities, other)
Customer Account Information
– (8) Customer’s marital status and number of dependents
– (9) Other information used/considered by Member in making recommendations to customer
Customer Account Information
• Existing customer accounts:– Member can obtain the additional
information required under 2-30(c) through an addendum to the account agreement
• Members must document the information or create a written record that the customer declined– Now required for non-U.S. customers who
trade security futures
Account Approval
• New Compliance Rule 2-30(j)• Under 2-30(j)(1)
– The Member must exercise due diligence to learn essential facts relative to customer including:
• customer’s investment objectives, and• financial situation
– And based on those facts (and information obtained under 2-30(c)) a supervisory person must approve or disapprove the account for trading SF
Account Approval
• Under this rule a Member FCM/IB is required to:– Have the account approved/disapproved
by a DSFP (under Compliance Rule 2-7(b) or equivalent for NASD Members)
– Maintain a written record of the approval/disapproval
– Identify the person approving/disapproving the account, and
Account Approval
• The customer account records must contain information about the account including:– The name of the Associate
– How the customer’s information was obtained
– The date the disclosure statement for SF was provided
Account Approval
• Must adopt and enforce procedures that require:– Specific criteria and standards to be used
in evaluating the suitability of a customer to engage in security futures,
– Specific procedures for approving accounts to engage in SF, including requiring approval by a DSFP,
Account Approval
– The DSFP must explain in writing why he/she approved account that does not meet the specific criteria and standards set forth in procedures, and
– Specific financial requirements for initial approval and maintenance of customers account that engage in SF
Account Approval
• For existing accounts:– The Member must establish the
procedures and apply them to those accounts.
– The Member must obtain the additional information and then, based on the criteria or standards it has adopted, approve/disapprove each account in accordance with those standards
Case Study
Account Approval
• Account documentation under Compliance Rule 2-30(j)(2)– Unless the customer account information was
received in writing, Members must forward:• The background and financial information
upon which the customer’s account has been approved to each customer who is an individual for verification within 15 days after being approved
• And, within 15 days, for any material change in the customer information that the Member becomes aware of
Account Approval
• Absent any notification to the contrary from the customer, the information is deemed verified
QUESTIONS?
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