Customer Ledger

Ambrose is learning the firm's core records at Halvorsen Securities. He needs the record that shows, separately for each individual customer, every purchase, sale, receipt and delivery of securities in that customer's account together with all other debits and credits. He should look at:

1. A.The blotter, which lists the firm's transactions in chronological order.The blotter is organised by day across all customers, not by individual customer.
2. B.The general ledger, which records the firm's assets, liabilities, income and expenses.The general ledger concerns the firm's own finances, not any individual customer's activity.
3. C.The customer ledger, which itemises activity separately for each customer's account.Correct. The customer ledger records each customer's purchases, sales, receipts, deliveries, debits and credits.
4. D.The stock record, which shows the long and short position in each security and where it is held.The stock record is organised by security and location, not by customer.

Why: The customer ledger itemises activity account by account, so it answers questions about one customer's history. This is distinct from the blotter, which is a daily record of all transactions the firm executed on a given day, from the general ledger, which records the firm's own assets, liabilities, income and expenses, and from the stock record, which shows the total long and short position in each security and where it is held.

Peverell Clearing carries customer positions and must periodically satisfy itself that the securities it says it holds are actually there. Under the SEC rule requiring a periodic securities examination and count, the firm must, at least quarterly:

1. A.Physically count securities in its possession, account for those subject to its control, verify outside locations, compare the results with its records, and record any differences.Correct. The rule requires a count, verification of outside locations, comparison with the firm's records, and investigation of differences.
2. B.Reprint the stock record and certify to FINRA that it is accurate.Reprinting the firm's own record is not verification. The count exists precisely to test the stock record independently.
3. C.Obtain written confirmation from each customer that the positions on the statement are correct.Customer confirmation is not the mechanism. The firm verifies against depositories and other locations, not against customers.
4. D.Deliver all securities in its possession to a central depository and rely on the depository's records.Using a depository does not remove the obligation. The firm must still verify positions held at outside locations.

Why: The rule requires a firm to physically examine and count securities in its physical possession, account for all other securities subject to its control or direction but not in its possession, verify locations where securities are held by others, compare the results with its own records, and record and investigate any differences. This is the operational check that keeps the stock record honest.

Two days after a customer trade has settled, Salterton Clearing discovers the execution was booked to the wrong customer account. What does correcting this require that a correction caught before settlement would not?

1. A.Nothing further than rebooking the trade to the correct account, since the ledgers follow the booking automatically.Wrong. That is true while the obligation is still open, and untrue once cash and securities have actually changed hands.
2. B.Cancelling the published trade report, which unwinds the settlement at the depository.Wrong. The tape and the settlement system are unconnected on this point; withdrawing a report moves no securities and returns no money.
3. C.Reversing entries in both customer accounts to undo the cash and securities that have already moved.Correct. Delivery and payment are complete, so the only way to restore the true position is to back the settled entries out and rebuild them where they belong.
4. D.Sending a DK notice to the contra broker, whose records no longer agree with the firm's.Wrong. A DK addresses disagreement between two firms on the street side, and the street side of this transaction was never in dispute.

Why: Before settlement a mis-booked trade is still an open obligation, and redirecting it is a matter of amending the booking so that delivery and payment reach the right account when they occur. Once settlement has happened the money and the securities have already moved, so there is nothing left to redirect: the correction has to reverse what settled in the account that wrongly received it and establish the position and the cash in the account that should have received it. That is why a past-settlement correction touches the customer ledgers and the stock record rather than merely the trade booking. The street side of the transaction was correct throughout, which is why nothing needs to be taken up with the contra broker.