Question

John is a registered representative who has discretionary options accounts for 25 of his largest customers. John likes the news coming out of ABCD Corporation and decides to buy ABCD calls for some of his clients. He buys 30,000 ABCD call contracts for 10 out of the 25 discretionary accounts that he manages. The position limit for ABCD is 250,000 contracts on each side of the market. Which statement is TRUE?A. This is not a violation of position limits because the positions were taken in different accountsB. This is not a violation of position limits because of the exemption from position limit violations given to positions taken in 10 or fewer accountsC. This is not a violation of position limits because position limit violations only apply to the down-side of the marketD. This is a violation of position limits

Answer 1

This is a violation of position limits

Step-by-step explanation:

Accounts controlled by a single entity are aggregated in order to identify if position limits have been violated. Usually, control exists for registered representatives capable of using their discretionary power over various customer account; in such case the accounts are usually aggregated to check for violation. In the case, the representative bought 30,000 calls in the 10 accounts that he possesses discretionary power. Hence, when it is aggregated, we get 300,000 contracts available on the upside of the market, and hence it exceed the position or contract limit of 250,000 contracts.

Answer 2

D. This is a violation of position limits.

Step-by-step explanation:

John is managing 25 accounts, and when there is common control all accounts involved are aggregated to see if they are violating position limits.

John is buying 30,000 calls each for 10 of his accounts (30,000*10= 300,000) out of 25 accounts that he has discretionary options for.

ABCD corporation has position limit of 250,000 contracts on each side of the market.

So John is in violation of position limits. He bought 300,000 calls and ABCD corporation's limit is 250,000.