Examkin

Question

Difficulty: HardSettlement Dates, Trade Confirmations, and Corporate Actions

Match each trade confirmation disclosure requirement or corporate action milestone on the left with its correct regulatory definition or timing rule on the right under current FINRA and SEC rules.

  • Agency Capacity DisclosureRequires confirmation to disclose that the firm acted as a middleman and report the commission charged.
  • Principal Capacity DisclosureRequires confirmation to disclose that the firm traded for its own account and report the mark-up or mark-down.
  • Regular-Way Cash Dividend Ex-DateSet by SRO rules to fall on the exact same business day as the Record Date.
  • Large Stock Dividend (geq25\\geq 25\\%) Ex-DateSet by SRO rules to fall on the first business day immediately following the Payable Date.

Answer

Agency Capacity Disclosure pairs with commission disclosure; Principal Capacity Disclosure pairs with mark-up/mark-down disclosure; Regular-Way Cash Dividend Ex-Date pairs with falling on the Record Date; Large Stock Dividend (25% or greater) Ex-Date pairs with falling on the business day following the Payable Date.
Under current FINRA and SEC rules: (1) An agency confirmation must disclose that the firm acted as agent (broker) and list the commission. (2) A principal confirmation must disclose that the firm acted as principal (dealer) for its own inventory account and state the mark-up or mark-down. (3) Under T+1T+1 regular-way settlement, the ex-dividend date for standard cash dividends is the same business day as the Record Date. (4) For stock distributions of 25%25\% or greater, the SRO defers the ex-date to the first business day following the Payable Date, using due-bills during the intervening period.

Step-by-Step Solution

1
Analyze trade confirmation capacity rules
Broker-dealers acting in an agency capacity charge a commission, whereas broker-dealers acting in a principal capacity trade for inventory and charge a mark-up or mark-down.
FINRA Rule 2232 requires clear capacity and fee disclosure on trade confirmations.
2
Determine regular cash dividend ex-date timing under T+1T+1 settlement
Since regular-way settlement is T+1T+1, buying on the business day before the Record Date results in settlement on the Record Date (entitling the purchaser to the dividend). Thus, the ex-dividend date (first day trading without dividend) is the Record Date.
Under T+1T+1 rules, the ex-date coincides with the record date for standard cash distributions.
3
Determine large stock dividend (geq25\\geq 25\\%) ex-date timing
For stock splits or stock dividends of 25%25\% or more, FINRA/exchange rules dictate a deferred ex-date, which is the business day following the Payable Date, attached with due-bills prior to that date.
Due-bills track ownership transfers for large distributions until payment occurs.

Key Concept

Broker-Dealer Trade Confirmation Disclosures & Corporate Action Ex-Dates under T+1 Settlement
Rate this question

Topics

Settlement Dates, Trade Confirmations, and Corporate Actions