Stock Record

On his second week in operations at Halvorsen Securities, Ambrose is handed a report listing, for every security the firm handles, the total long and short positions and where each position sits - in customer accounts, in the firm own account, in transit, or at the depository. This record is the firm:

1. A.BlotterA blotter records the day transactions - purchases, sales, receipts and deliveries - not standing positions and their locations.
2. B.General ledgerThe general ledger records the firm assets, liabilities, income and expense in dollars. It does not track securities positions by location.
3. C.Securities record, commonly called the stock recordCorrect. The stock record shows every position the firm handles and the location of each, in a double-entry format required by Rule 17a-3.
4. D.Trial balanceA trial balance is a periodic proof that the ledger accounts balance, prepared alongside the net capital computation.

Why: The securities record, usually called the stock record, is the double-entry inventory of every security position the firm handles: what it holds and who owns it, matched against where it is physically or electronically located. It is one of the core records required by SEC Rule 17a-3.

A firm's stock record shows, for a given security, positions recorded across several different locations -- some in the firm's own vault, some at a clearing corporation, some out on loan, and some in transfer. What must be true about these location-by-location entries in total?

1. A.Each location's entry must independently equal the firm's total position in the security, with no relationship required between the different locations' figures.Wrong. Individual locations do not each independently equal the total; they must sum together to reconcile with the total.
2. B.Only the vault entry matters for reconciliation purposes; entries at other locations are informational only and do not need to sum to anything in particular.Wrong. All location entries matter and must sum to reconcile with the total position, not just the vault entry.
3. C.The entries at different locations should be reconciled against each other only once per year, rather than being maintained on an ongoing basis.Wrong. Reconciliation is an ongoing requirement, not an annual event.
4. D.The sum of the position recorded across all the locations must reconcile to the firm's total position in that security, since the stock record is meant to account for every share the firm is responsible for, regardless of where it currently happens to be held.Correct. All location entries must sum to reconcile with the firm's total position in the security.

Why: The stock record's whole purpose is to account for every share of a security the firm is responsible for, no matter where it currently happens to be located -- in the vault, at a clearing corporation, out on loan, or in transfer. Because each location entry represents a piece of the same total position, the sum across all locations has to reconcile to the firm's actual total position in that security; if it does not, something is unaccounted for somewhere in the chain.

The stock record of a broker-dealer carries every security position twice. What do the two sides represent, and what relationship must hold between them?

1. A.One side shows who owns the securities and the other shows where they are held; for each issue the two must be equal.Correct. A gap between the two sides is exactly what the count and reconciliation controls are built to expose.
2. B.One side shows purchases and the other sales; the two must net to the trading volume of the day in that issue.Wrong. That describes a journal of daily activity rather than the record of standing positions.
3. C.One side shows customer positions and the other firm positions; customer positions must exceed firm positions.Wrong. No rule fixes a ratio between proprietary and customer holdings, and both sit on the ownership side anyway.
4. D.One side shows market value and the other cost basis; the difference is the unrealized gain in the account.Wrong. Valuation belongs to the general ledger and the customer statement, not to a record of share quantities.

Why: The stock record is a double-entry record of securities positions. For every issue it shows an ownership or responsibility side, naming the customer, firm or counterparty account the shares belong to, and a location side, naming the vault, the depository, transfer, stock loan, a bank or a fail. Because every share must be owned by someone and sitting somewhere, the two sides of each issue have to balance. When they do not, the firm has a stock record break, and the periodic count and the custodian reconciliation exist to find and clear those breaks.

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.