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Question

Difficulty: Very hardCustomer Account Types and Ownership Structures

A registered representative opens a corporate account for an institutional client. The client submits a corporate resolution designating the Chief Financial Officer (CFO) and the Vice President of Treasury as authorized individuals who may each independently place orders to trade securities. However, the resolution specifically mandates that any outgoing third-party wire disbursements require joint written authorization signed by both officers. Several months later, the CFO independently submits a written request to liquidate $1,000,000 of corporate bonds and immediately transfer the cash proceeds via wire to an unaffiliated escrow account for an acquisition. The written request bears only the CFO's signature. Under standard account control rules and industry regulatory principles, how should the registered representative handle this request?

  1. Execute the bond liquidation order as requested, but withhold processing the wire disbursement until joint written authorization containing the Vice President of Treasury's signature is obtained.Answer
  2. B
    Execute both the bond liquidation order and the outgoing wire transfer, because individual trading authority automatically implies full authority over resulting transaction proceeds.
  3. C
    Reject both the sell order and the wire transfer request, because an officer lacking full unilateral disbursement rights is prohibited from placing order executions.
  4. D
    Place a mandatory 15-business-day hold on the entire corporate account under FINRA rules because the single-signature request constitutes an unauthorized takeover attempt.

Answer

The registered representative should execute the trade order to liquidate the securities, but refuse to process the outgoing wire disbursement until the joint written authorization signed by the Vice President of Treasury is received.
Corporate account resolutions establish binding legal boundaries regarding who may act on behalf of an entity. When opening and servicing corporate accounts, member firms must strictly separate order execution rights from fund disbursement rights. Because the corporate resolution explicitly permits either officer to trade independently, the bond liquidation is valid and should be executed. However, because the resolution mandates joint authorization for outgoing disbursements, the wire transfer cannot proceed without the required second signature.

Step-by-Step Solution

1
Analyze the scope of corporate account authority documents.
The corporate resolution explicitly grants individual trading authority to the CFO while requiring joint authorization for third-party disbursements.
Broker-dealers must enforce the specific terms of corporate documentation, distinguishing between order placement rights and asset movement rights.
2
Evaluate the CFO's liquidation request.
The order to sell $1,000,000 of corporate bonds is validly authorized under the CFO's individual trading authority.
Trading authority allows an authorized officer to buy or sell securities within the account without requiring co-signatures unless specified.
3
Evaluate the third-party wire transfer request.
The wire transfer request cannot be processed with only the CFO's signature.
The corporate resolution mandates joint written authorization signed by both designated officers for outgoing disbursements.

Key Concept

Corporate Account Resolution & Separation of Trading vs. Disbursement Authority
Estimated Time:2m 0s
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Topics

Customer Account Types and Ownership Structures