Welcome to Custody and Control of Securities: the operational safeguards that protect customer assets, keep position records accurate, and ensure securities can be transferred or delivered in acceptable form.
Exam Weight: 6 of 35 in Function 1 (12% of exam)
What You'll Learn
In this unit, you'll cover:
- Custody, safekeeping, and customer asset protection: How safekeeping, segregation, custody, control, street name, and beneficial ownership fit together, including limits on a firm's use of customer securities.
- Securities counts and verification: How a box count, stock record, reconciliation, and difference account reveal and resolve position discrepancies.
- Securities transfers and delivery: How certificates, transfer documents, validation, blotters, direct registration, and depository processing support proper delivery.
- Stock legends and restricted securities: Why a legend limits negotiability and how restricted securities differ from control securities.
- Holding periods and legend removal: The resale safe harbor holding periods for restricted securities issued by reporting and non-reporting companies.
Why This Matters
Operations personnel protect customers by knowing where securities are held, who owns them economically, and whether the firm can promptly obtain them. The exam also tests the points where a certificate, count, or resale restriction can prevent an otherwise routine delivery from being completed.
Let's start with the custody framework that separates customer assets from the broker-dealer's own assets.