Jayne Logan, a loan officer at State National Bank, has recently recruited Mr. David Roberts as a new loan customer. She has known Mr. Roberts for 10 years and handled his lending transactions at another bank where she previously worked. As his first transaction with State National Bank, Mr. Roberts pledges stock that is traded on the NYSE. The stock is received directly from Mr. Roberts, who has his secretary personally deliver it to the bank. Is the bank required, in this instance, to send a lost or stolen securities inquiry regarding the stock? Why or why not?
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A. B. C. D.B
The correct answer is D. Yes. All stock pledged against a loan that is traded on the NYSE must have an inquiry sent.
The reason for this is that stock pledged as collateral for a loan is considered a security and is subject to certain regulations under the Securities Exchange Act of 1934. Specifically, Rule 17f-1 requires banks and other financial institutions to report lost or stolen securities to the appropriate regulatory authorities.
In this case, Mr. Roberts has pledged stock that is traded on the NYSE as collateral for his loan with State National Bank. As a result, the bank is required to send a lost or stolen securities inquiry to the appropriate authorities in the event that the stock is lost or stolen. This requirement is not affected by Ms. Logan's personal relationship with Mr. Roberts, the fact that Mr. Roberts delivered the stock personally, or the fact that he is a new customer to the bank.
It is important for financial institutions to comply with these reporting requirements in order to help prevent fraud and protect investors. Failing to report lost or stolen securities could lead to regulatory action against the institution and could harm the institution's reputation with customers and investors.