Brokerage Firm Operations Quiz
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Questions and Answers

What principle must brokerage firms uphold while dealing with clients?

  • Profit maximization
  • Customer prioritization
  • Fairness (correct)
  • Transparency
  • Which of the following modes of order submission is NOT allowed by brokerage firms?

  • Fax orders
  • Oral orders (correct)
  • Written orders
  • Email orders
  • What must a brokerage firm do to maintain confidentiality regarding client transactions?

  • Share information if they feel it is necessary
  • Disclose information with client permission only (correct)
  • Require client signatures on all documents
  • Regularly update clients on their financial status
  • Why must brokerage firms segregate accounts?

    <p>To comply with regulations issued by the Authority</p> Signup and view all the answers

    Which statement is true regarding the handling of client complaints?

    <p>Complaints must be managed properly and in a timely manner</p> Signup and view all the answers

    What is required of brokerage firms regarding call recording?

    <p>They must comply with Authority regulations on recording</p> Signup and view all the answers

    Which of the following best describes the obligation of brokerage firms in relation to fairness?

    <p>Treating similar client dealings in an equitable manner</p> Signup and view all the answers

    What must brokerage firms ensure before taking an order from a client?

    <p>That the order is either written or received through specified methods</p> Signup and view all the answers

    What happens if a client fails to pay for securities bought on its behalf within the settlement period?

    <p>The securities will be sold at market price upon market approval.</p> Signup and view all the answers

    Which obligation is NOT required of brokerage firms regarding their employees?

    <p>Allowing unauthorized persons to access trading systems.</p> Signup and view all the answers

    What are the consequences of losses incurred from selling securities due to a client's non-payment?

    <p>The losses are solely incurred by the client or the brokerage firm.</p> Signup and view all the answers

    Which of the following is a key expectation of the DFM's Professional Code of Conduct?

    <p>Acting in ways that could harm the reputation of other firms.</p> Signup and view all the answers

    In which scenario may representatives of a broker execute orders for their own benefit?

    <p>Upon approval of the market in accordance with regulations.</p> Signup and view all the answers

    What must brokerage firms ensure about their employees who interact with clients?

    <p>They must possess appropriate qualifications and professional experience.</p> Signup and view all the answers

    What type of regulations must brokers follow when dealing with clients in cash?

    <p>Applicable anti-money laundering regulations.</p> Signup and view all the answers

    What is a critical responsibility of brokerage firms regarding their supervision of employees?

    <p>To have the necessary resources for effective and constant supervision.</p> Signup and view all the answers

    What is the minimum requirement for record keeping as stated in Article 8 of the DFM’s Professional Code of Conduct?

    <p>All concluded client agreements and securities details</p> Signup and view all the answers

    Which of the following is NOT required to be documented by brokerage firms under record keeping regulations?

    <p>Personal opinions of the brokerage employees</p> Signup and view all the answers

    On what basis is the opening price for a dual listed company security determined on its first trading day on the DFM?

    <p>Last closing price from the principal market</p> Signup and view all the answers

    Which activity is primarily conducted during the pre-opening session on the DFM?

    <p>Determining the opening price for listed securities</p> Signup and view all the answers

    What exception exists regarding price limits for securities listed on the DFM during their first trading session?

    <p>Price limits do not apply and the price can float</p> Signup and view all the answers

    What governs the application of daily price margin limits on the DFM?

    <p>Market procedures from the security's first trading day</p> Signup and view all the answers

    Which of the following records is required to be maintained by brokerage firms about their clients under Article 8?

    <p>Securities owned by clients and any assets held</p> Signup and view all the answers

    Under what circumstance may different procedures apply for the trading of foreign shares on the DFM?

    <p>When justified and appropriate by market management</p> Signup and view all the answers

    What must brokerage firms notify the market about?

    <p>Any material changes or developments in the company</p> Signup and view all the answers

    What is required when a brokerage firm is licensed to carry out multiple activities?

    <p>They must have autonomous, dedicated departments for each activity</p> Signup and view all the answers

    What action must brokerage firms take regarding the information they publish?

    <p>Refrain from publishing incorrect information</p> Signup and view all the answers

    What must brokerage firms verify regarding their clients?

    <p>The eligibility of their clients and soundness of transactions</p> Signup and view all the answers

    What is a requirement for executing trades outside normal trading hours?

    <p>They must refrain from such execution unless allowed by applicable laws</p> Signup and view all the answers

    What must brokerage firms provide evidence of for all executed orders?

    <p>Proof of client consent acquired through various means</p> Signup and view all the answers

    What must brokerage firms do regarding obligations from trading activity?

    <p>Meet all trading obligations within specified timelines</p> Signup and view all the answers

    Which action is required if there are changes in board members?

    <p>Notify the market of any change in board members</p> Signup and view all the answers

    What circumstance allows a CEO to cancel orders for a particular security?

    <p>Transactions resulted from a technical glitch</p> Signup and view all the answers

    What must a broker do with the value of securities sold on behalf of a client?

    <p>Add it to the client's balance by the settlement period end</p> Signup and view all the answers

    What is required for brokers to trade securities listed on the DFM?

    <p>Trading must be conducted through the brokerage firm</p> Signup and view all the answers

    Under what condition can the Authority cancel a trading transaction?

    <p>If the transaction violates laws or regulations</p> Signup and view all the answers

    What is the maximum time frame a broker has to make payment for sold securities?

    <p>Before the end of two days or settlement period</p> Signup and view all the answers

    What must a client do to pay for securities bought on their behalf?

    <p>Pay before the settlement date</p> Signup and view all the answers

    What happens if both brokers of a transaction request cancellation?

    <p>The cancelation can only occur if there are serious reasons</p> Signup and view all the answers

    What happens if a client does not request the value of sold securities?

    <p>It is added to the client's balance without request</p> Signup and view all the answers

    What happens to a day order if it is not executed by the end of the trading session?

    <p>It expires.</p> Signup and view all the answers

    Which type of order must be executed immediately during the trading session?

    <p>Immediate-Or-Cancel</p> Signup and view all the answers

    What is the main characteristic of a limit order?

    <p>It specifies a price at which to buy or sell shares.</p> Signup and view all the answers

    Which order type expires at a specified date if not executed?

    <p>Good-Till-Date</p> Signup and view all the answers

    What is the fate of the remaining parts of a market order if it is only partially executed?

    <p>They are displayed at the last execution price.</p> Signup and view all the answers

    What distinguishes a good-till-cancelled order from a day order?

    <p>It remains until canceled while a day order expires by the end of the session.</p> Signup and view all the answers

    During which session can market orders be placed?

    <p>During the trading session only</p> Signup and view all the answers

    What does an at-the-close order do if it is not executed?

    <p>It expires at the end of the trading session.</p> Signup and view all the answers

    Study Notes

    Chapter Eight: Dubai Financial Market (DFM)

    • The DFM operates as a secondary market for securities, bonds, and other financial instruments.
    • It was established in March 2000.
    • The DFM has a capital of AED 8 billion, divided into 8 billion shares, 20% of which were offered via IPO.
    • Operations follow Sharia principles and are regulated by the UAE Securities and Commodities Authority (SCA).
    • The syllabus area covers approximately 11 of 100 examination questions.

    Brokerage Firms

    • Brokerage firms operating in the DFM must maintain financial solvency in accordance with authority criteria.
    • They must notify the market of significant changes or developments that may affect their financial position.
    • Adjustments to license applications and order system modifications must be reported.
    • Employees need to adhere to laws, regulations, and circulars.
    • Firms must operate separate departments if handling multiple activities.
    • Brokerages must not publish inaccurate information about firms with traded securities.
    • Firms must verify client eligibility and transaction soundness.
    • Brokerages are prohibited from executing transactions outside trading sessions unless allowed by applicable laws.
    • They must maintain books and records that meet IFRS, or through computerised means, for ten years.
    • Copies of client orders, regardless of method, must be retained.

    Obligations of Brokerage Firms to Clients

    • Brokerage firms must comply with the Professional Code of Conduct, refraining from actions that compromise the reputation of the market.
    • Brokers cannot trade securities for clients before a formal, signed contract is in place.
    • Brokers must verify client payment ability before settlement.
    • Brokers must not deal with third parties for clients lacking a proper authorization document.
    • Orders must include date, time, security type, number, and price, and client or representative signatures when written.
    • Blank and signed order forms should not be accepted.
    • Brokerages are responsible for client funds according to instructions.
    • Executed transactions must be communicated to the client in writing or through agreed-upon channels.

    Trading Members and Clearing Members

    • Trading members need to contract a clearing member to manage client accounts and commission distribution.
    • This contract must be submitted to both the DFM and the SCA.
    • Trading members must not receive client cash directly; clearing members manage client payments.
    • Brokerage firms must adhere to margin trading regulations.
    • Payment cannot be made through post-dated cheques unless already cashed.

    Rules of Securities Trading in the DFM: Order Handling

    • Client orders (buying or selling securities) can come through fax, email or other electronic means.
    • The broker must be able to verify order details (client name, security, type (buy/sell), number, price , and validity date).
    • Brokerages must handle orders fairly, prioritizing client orders over their own.
    • Only authorized representatives can enter orders.
    • Order priority is determined by price (best price), time of entry (earlier orders get priority) if prices are equal.

    Broker Reporting Requirements

    • Upon order execution, brokers must notify clients regarding the transactions.
    • Clients must receive a statement of account every three months detailing their securities, cash balances, and executed transactions.

    Conflicts of Interest

    • Brokers involved in transactions that create conflicts of interest must take steps to avoid harming client interests.

    Internal/Insider Information

    • Brokers cannot use internal knowledge to profit from transactions, including information related to large specific security transactions.
    • Pre-publication financial consultations are considered internal information.

    Dealing for Board Members

    • Firms must ensure board member transactions do not violate regulations regarding the disclosure of price-sensitive information.

    Mistakes

    • Brokers can request to correct trading session account number errors within 30 minutes, and in exceptional cases, within approval, if deemed acceptable under DFM rules.

    Cancellations

    • Orders can be cancelled in specific situations outlined by DFM regulations.

    Obligations to Employees and Representatives

    • Brokerage firms must ensure employees involved in client interactions have appropriate qualifications and experience.
    • Firms must have the ability to continually supervise staff members.
    • Firms are held accountable for the actions of their staff.
    • The use of electronic platforms must be in accordance with DFM guidelines.

    Obligations in Relation to Client Due Diligence (CDD)

    • Brokerage firms must gather client information, including full name, passport details, nationality and profession as well as address and other relevant information.

    Other Obligations

    • Brokerage firms uphold fairness in client interactions, avoiding any actions that may provide unfair advantage to clients.
    • All client complaints must be dealt with promptly and in a professional manner.
    • If suspicious market activity is detected, the DFM must be immediately informed.

    Prohibited Actions

    • Firms cannot profit from client orders or mislead investors through manipulative trading activities.
    • Brokerages may not use knowledge of client orders to execute self-beneficial transactions.

    Record Keeping

    • Firms must maintain accurate records of all client agreements and transactions.

    Online Trading Regulations(DFM): Price Limits

    • Securities have price limits set by the market, but during their first trading session, a floating price is allowed.
    • Opening prices are determined by pre-opening sessions reflecting demand and supply within the given period, and these are applicable limits for foreign firms operating within the DFM.

    Order Types(DFM)

    • Orders are categorized based on price (limit and market orders)
    • Valid orders may vary in the nature of their expiration and executability, such as day orders that expire at the end of a specific trading session.

    Order Handling(DFM): Prioritization of Orders

    • Order executions prioritize price (highest for buying, lowest for selling), and time of entry (earlier order trumps a later order with the same price).
    • When prices are equal, previous day orders are processed before current day orders.
    • Adjustments to order details (such as price or volume) will lead to the order losing its prioritisation according to the date and time of adjustments.

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    Description

    Test your knowledge on the principles and regulations that brokerage firms must follow while dealing with clients. This quiz covers topics such as order submission, confidentiality, account segregation, and more. See how well you understand the obligations of brokerage firms in maintaining client trust and compliance.

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