If the customer cannot pay by the end of the extension, the broker/dealer has the option to either request an additional extension from its DEA or sell the securities in a closeout transac- tion. Broker/dealers are not likely to request too many extensions as a firm and are generally reluc- tant to request many for the same customer repeatedly unless severe circumstances warrant the request. If the option to close out the position is chosen, the account is frozen for 90 days. A frozen account must have sufficient cash in it before a buy transaction can be executed. ✓ T A K E N O T E Regulation T deals with the extension of credit for regular security trades. If a broker/dealer must close out a transaction and freeze the account, the customer may not be extended credit. 9. 1. 2. 5. 2 Frozen Accounts If a customer buys securities in a cash account and sells them before paying for the buy side by the fifth business day, the account is frozen. Any additional buy transactions require full payment in the account, and sell transactions need securities on deposit. Frozen account status continues for 90 calendar days. Frozen account status is lifted if the customer pays by the fifth business day. ! T E S T T O P I C A L E R T The following table gives a summary of the trade settlements and delivery times for different securities and different types of settlement choices. Summary of Settlement Rules Regular way—Equity 3 business days Regular way—Corporate and municipal bonds 3 business days Regular way—Equity options Next business day Regular way—Index options Next business day Regular way—T-bills, T-notes, and T-bonds Next business day Regular way—U.S. government agency 3 business days Seller’s option No sooner than T+4 Cash settlement Same day Regulation T T+5 Assume a question is asking about the normal customer settlement terms, regular way, unless the question specifically mentions Regulation T. Also, here ’ s a hint on municipal when-issued settlements. A probable question will ask either what is not included or what is included on a when-issued
400 Unit 9 Brokerage Support Services confirmation. To discern the correct answer, remember SAT , which identifies what is not included: ■ ■ S ettlement date ■ ■ A ccrued interest ■ ■ T otal dollar amount due at settlement If a question asks when customer confirmations must be sent, the answer is no later than the settlement date. But if the question asks when broker-to-broker confirmations must be sent, the answer is no later than the business day following the trade date (T+1). 9. 1. 3 PROXY DEPARTMENT The proxy department sends proxy material to customers who have securities held in the broker-dealer’s name (street name). In addition, other materials received from the issuer such as financial reports are also forwarded to the customer by the proxy department.
- Spring '16
- Nushwan Al-Nakash