Nominee Account

Agent Rufus Chikelu opens a brokerage account titled RC Holdings, a name he invented and which corresponds to no real entity, and uses it to trade for himself so that his firm compliance department will not connect the activity to him. Every dollar in the account is his own and he pays for each trade in full. Under state securities law, this conduct is:

1. A.Prohibited. Using a fictitious account name to conceal the true beneficial owner is deceptive and defeats the firm ability to supervise his personal trading.Correct. Concealment of beneficial ownership is deceptive and undermines required supervision.
2. B.Permitted, because an agent may title an account however he likes so long as trades are paid for in full.Incorrect. Account titling must reflect the true beneficial owner; it is not a matter of preference.
3. C.Permitted, because the account holds only his own funds and no customer suffers a loss.Incorrect. Absence of customer harm does not excuse deliberate concealment from the firm.
4. D.Prohibited only if he trades securities his firm also recommends to its customers.Incorrect. The violation does not depend on what he trades; it is the hidden account itself.

Why: Opening an account under a fictitious name to obscure who actually owns it is a deceptive practice in its own right. It also defeats the supervisory system: a firm cannot review an associated person personal trading, watch for front running or enforce holding periods if it does not know the account belongs to him. The fact that only his own money is involved is beside the point, because the violation lies in the concealment rather than in any particular trade.

Corbin Securities is an introducing broker-dealer that clears its business through Larkfield Clearing under a carrying agreement. Under a FULLY DISCLOSED arrangement, as distinguished from an OMNIBUS arrangement:

1. A.The carrying firm knows only the introducing firm and holds all customers within a single aggregate account in the introducing firm's name.Wrong - that describes an OMNIBUS arrangement, the alternative structure.
2. B.The introducing firm takes custody of customer funds and securities and computes its own customer reserve requirement.Wrong. The point of introducing on a fully disclosed basis is that the carrying firm holds the assets and bears the custody and reserve obligations.
3. C.The introducing firm is relieved of suitability and know-your-customer obligations, which transfer to the carrying firm.Wrong. Those obligations remain with the firm that has the customer relationship, whatever the clearing arrangement.
4. D.The carrying firm knows the identity of each customer, holds the accounts in the customers' own names, and issues the confirmations and statements.Correct. Customer-level transparency to the clearing firm is what "fully disclosed" means.

Why: In a fully disclosed relationship, the introducing firm passes customer identities through to the carrying firm. Larkfield opens each account in the individual customer's own name, holds the funds and securities, and issues the confirmations and account statements - typically identifying Corbin as the introducing firm. In an OMNIBUS arrangement the carrying firm sees only Corbin: every customer sits inside a single aggregate account in Corbin's name, and Corbin does its own customer-level recordkeeping. FINRA rules require the carrying agreement to allocate each regulatory responsibility in writing.