Custom Flashcards
1
Q
margin requirements
A
$2K under $2k investment, $2k for investments between $2K and $4k, 50% over $4k investment
2
Q
customer finders’ fee
A
customers of an investment firm are never allowed to receive a finders’ fee for introducing additional business to the firm
3
Q
recession
A
occurs after a decline in GDP for two or more consecutive quarters
4
Q
depression
A
a decline in GDP exceeding 10% or a decline in GDP for at least six consecutive quarters
5
Q
stagflation
A
periods of slow economic growth accompanied by rising prices, or inflation and relatively high unemployment
6
Q
inflation
A
increasing prices and cost of living
7
Q
expansion
A
increased economic activity and increased availability of goods and services; unemployment declines and GDP rises
8
Q
accrued interest rules: corporate. municipal and agency bonds
A
a year is assumed to have 360 days with 30 days each month; T+2 settlement
9
Q
accrued interest rules: T-notes and T-bonds
A
a year is assumed to have 365 days with actual-day months; T+1 settlement
10
Q
accrued interest mechanics
A
the number of days of accrued interest is calculated on the last coupon date, including that date and up to, but not including, the settlement date; be aware of weekends when calculating settlement date
11
Q
contributions to IRAs and corporate retirement accounts
A
an individual may contribute to both an IRA and a corporate retirement account at the same time
12
Q
non-qualified ERISA plans
A
Payroll deduction, deferred compensation
13
Q
qualified ERISA plans
A
401k, Keogh plan (HR-10), pension plan
14
Q
OTC margin requirements
A
the Federal Reserve Board has to approve OTC stocks for margin trading
15
Q
position trading
A
broker-dealers acting in a dealer capacity (market maker) to trade for their own accounts
16
Q
letter of intent
A
a type of contract offered by a mutual fund in which an investor agrees in writing to purchase a specified amount of shares over the next 13 months, can be backdated up to 90 days, shares can be held in escrow and liquidated to pay higher sales charges if the investor does not complete the LOI
17
Q
Securities exchange act of 1934
A
regulates the secondary market requiring participants be registered. Anti-fraud provisions make up a large portion
18
Q
Securities exchange act of 1933
A
prohibits fraud and ensures investors receive all information regarding new issues. Regulates primary market and specifically new securities being SEC-registered.
19
Q
Trust indenture act of 1939
A
requires that corporate debt issues of more than $50MM include a trust indenture between the issuer and an independent trustee acting on behalf of the bondholders
20
Q
Accredited investor
A
net worth over $1MM (excluding residence) and/or past two years income over $200K ($300K jointly)
21
Q
Keogh Plan
A
also HR-10 plans; are qualified plans that allow self-employed individuals and owners of unincorporated businesses to contribute for retirement on behalf of themselves and their employees
22
Q
Bond current yield
A
annual interest divided by current market price
23
Q
Finra regulatory element
A
all registered individuals complete a computer-based training program within 120 days of 2nd anniversary and every three years after that (2, 5, 8, 11…)
24
Q
Finra firm element
A
must be completed by registered rep annually; firm policies could require reps to complete firm element more frequently
25
Private securities transactions
also selling away; participating in securities transactions that are not approved for sale by the firm. Rep must provide notice of the transaction and received written approval from their firm
26
SEC rule 144
defines the way in which control and restricted stock can be sold. restricted stock: subject to 6 month holding period; control stock: subject to volume restriction
27
US treasury tax
federal only
28
Ginnie Fannie Freddie taxes
federal and state/local
29
Muni bonds interest taxes
in-state: none; out of state: state/local
30
Corporate bonds, CMOs, foreign debt securities taxes
federal and state/local
31
Federal farm credit banks (farm credit) taxes
federal tax only
32
Treasury bills (T-bills)
zero coupon and mature in one year or less; quoted in secondary market on a discounted yield basis
33
Treasury notes (T-notes)
pay interest every 6 months and have maturities of 2, 3, 5, 7 or 10 years; quoted in secondary market as a percentage of par in 32nds. eg. 95:07 or 95-07
34
Treasury bonds (T-bonds)
pay interest every 6 months and have maturities of 30 years; quoted in secondary market as a percentage of par in 32nds. eg. 95:07 or 95-07
35
Treasury inflation-protected securities (TIPS)
inflation indexed bonds issued by the US treasury. The principal is adjusted semiannually based on consumer price index. Coupon rate is fixed but yields different cash flows depending on the adjusted principal
36
Separate Trading of Registered Interest and Principal Securities (STRIPS)
individual interest and principal components of certain treasury notes and bonds acting as separate securities; issued at discount and mature to face value
37
convertible bond conversion ratio
par value divided by conversion price
38
corporate bond quoting
quoted in 1/8 increments; includes bid ask spread
39
FINRA immediate family members
parents, mother/father-in-law, spouse, children, relative that the associated person supports
40
Pre-registration period
bake-off, mandate, S-1 & prospectus prepared, S-1 due diligence
41
Cooling-off period
20 days, road show, indications of interest (IOIs)
42
Post-effective date
Bankers confirm IOIs and allocate shares to investors, security begins trading on exchange
43
Structured products
derivative investment product that produces a return based on the performance of one or more underlying securities of markets. underlying securities can vary - typically structured with downside protection
44
Exchange-traded note (ETN)
structured product, type of unsecured corporate debt containing two elements: a bond for protection of principal and a derivative that offers equity exposure. do not pay interest
45
Master limited partnership (MLP)
limited partnerships offered to the public and traded on exchanges. common in natural resources, financial services and real estate
46
Discretionary trade requirements
when the rep decided either asset, amount of action. A not held order: an order in which the rep chooses time and price but not amount, asset or action
47
Age to contribute to IRA
there is no minimum age required to contribute to an IRA
48
Option class
all options of the same type (call or put) and issuer
49
Option series
all options of the same class, strike price and expiration
50
Indenture
a series of promises between the issuer and a trustee including protective covenants; protects and reassures bondholders
51
USA patriot act
introduced after 9/11/2001; imposed AML compliance program, customer identification program (CIP), prohibitions of transactions involving persons on the specially designated nationals list (SDN) and mandatory info-sharing in response to requests by federal law enforcement
52
Regulation T
requires investors to pay for all purchases T+4; if the investors has not paid for securities by T+4 (and an extension is not granted by FINRA), the position must be sold on the 5th day and the account is frozen for 90 days. If the payment shortage is less than $1000, this may be disregarded by broker-dealer. When the account is frozen, it is limited to sell orders only
53
Free-riding
when a customer buys a security and then sells it without first paying for it
54
Banker's acceptance
money market instrument that is used to finance and facilitate international trade; can be sold on secondary market prior to maturity
55
Mutual fund redemption timeline
the mutual fund must redeem shares to investors within 7 days
56
Securities investor protection corp. (SIPC)
not-for-profit organization; covers customers' cash and securities from a broker-dealer failure, not market losses; customers protected up to $500k total ($250k cash)
57
Rule 144/144A
144: defines conditions in which restricted and control securities can be sold; 144A: allows QIBs to freely trade unregistered securities among themselves
58
control person
officer of company (CEO, CFO), a member of the board of directors, an individual that owns more than 10% of voting shares
59
rights of accumulation
offers investors a reduced sales charge on subsequent purchases of a mutual fund the investor already holds a large position in; also applies to different investments within the same mutual fund group or family of funds
60
standby commitment
the underwriter will purchase shares not bought by existing investors in a rights offering and then will sell those shares to the public
61
best efforts commitment
underwriter attempts to sell all securities but has no obligation to purchase unsold shares
62
all-or-none commitment
a type of best efforts commitment where if not all shares are sold within a certain time period, the deal will be cancelled
63
minimum-maximum commitment
a type of best efforts commitment where the deal will be cancelled if a minimum amount is raised
64
firm commitment
underwriters agree to purchase all shares that are offered and then resell them to the public
65
competitive bid
underwriters submit to the issuer sealed bids to sell the securities; lowest rate wins
66
529 plan
college savings plan enable tax savings for payment of qualified education expenses; contributions are after-tax
67
Regulation M
SEC rule aimed at preventing market manipulation of IPOs and follow-on offerings by broker-dealers.
68
Stabilization
when the underwriters bid on a new issue in the secondary market to prevent a decline in price
69
Investment adviser definition
any person or firm that is engaged in the business of providing advice regarding securities for compensation
70
DNR, AON, FOK
do not reduce, all or none, fill or kill
71
Regulation D
private placement: an issuer offers securities to accredited investors; no public offering and therefore are not required to be registered with the sec
72
Retail communication
written or electronic communications to more than 25 retail investors within a 30 day period; print, internet and tv ads
73
Correspondence
written or electronic communications to 25 or fewer retail investors within a 30 day period
74
Institutional communications
written or electronic communications distributed or made available to institutional investors
75
LGIP
local government investment pools; a means for local governments to invest excess tax revenues in a fund that will be liquid but provide the government additional income until the money is needed
76
Outside business activity
business activities by registered reps outside the scope of the firm; firm must be notified but permission is not required
77
Interpositioning
prohibited action where the firm adds additional broker-dealer that adds no value for the customer.
78
Commingling
broker-dealers must separate fully paid customer positions from the positions of the firm and cannot be used to collateralize loans
79
Regulation S-P
requires firms to provide clients with privacy notices at account opening and annually thereafter
80
IRA contributions/(catchup)
$6000 per year; $1000 catchup per year over 50yo; 6% penalty assessed on excess amount
81
Junk bonds
below BBB- (S&P), Baa3 (Moody's)
82
Hidden profit
broker-dealers can't be both brokers and dealers in the same transaction; charging a client both fees in the same transaction is a violation
83
Rule 147
allows a company to sell securities to state residents only and avoid sec registration; state residents can sell to other state residents but must wait 6 months to sell to outside the state
84
Secondary offering
when a shareholder sells shares in the market; no new shares created
85
AML compliance
AML employee training must be ongoing, generally requiring annual training for persons designated by the firm
86
Margin disclosure statement
firms required to provide statement to customers prior to or at the time of opening the margin account as well as annually
87
RR lending to family members
permitted; family members include: parents, in-laws, spouses, children, grandparents, grandchildren, cousins, aunts, uncles, nieces, nephews, and any other person that a RR supports directly or indirectly
88
Third market
refers to over-the-counter trading of exchange-traded securities
89
Fourth market
electronic communications networks; passive computer systems that act as agents, automatically matching their members' buy and sell orders
90
Roth IRA penalty
If funds are withdrawn before age 59 1/2, a 10% penalty is incurred. Distributions are qualified tax free if the account owner is over 59 1/2 and the money has been in the plan for 5 years
91
Required Minimum Distributions
RMDs are required for traditional IRAs starting in the year after age 72; Penalty for not taking RMDs is 50% of the shortage
92
Limited partnership
a direct participation program which is regulated as a security in which passive gains and losses are passed through to investors
93
Blue sky laws
state securities laws enforced by each state's securities department of commission
94
ETFs primarily track
indexes
95
Agency trading
brokerage firm finds a counterparty to the customer's trade
96
Principal trading
brokerage firm completes customer's trade using their own inventory
97
Free writing prospectus
allows issuers to provide additional information to investors beyond what is in the registration statement or prospectus
98
Hedge funds
more than $150MM under management require SEC registration
99
Statutory disqualification
felony conviction in last 10 years, misdemeanor conviction related to securities or fraud within last 10 years; can't associate with FINRA member firm unless they receive a waiver from FINRA
100
Vulnerable investor
persons aged 65 and older, any person over 18 with a mental or physical impairment that renders the individual unable to protect their own interests
101
Bearer bond
until 1983, physical bonds held and paid to whomever possessed the bond. US currency is technically a bearer bond
102
Bank secrecy act
administered by FinCEN (financial crimes enforcement network) established basic framework for AML regulations
103
Currency transaction reports
filed with FinCEN within 15 days of cash deposit when a cash deposit over $10k is received. IRS must also be notified
104
SIMPLE IRA
IRA plan available to small businesses with no more than 100 employees
105
Adjusting limit and stop orders
orders entered below market value (buy limit and sell stop) are adjusted downwards on the ex-dividend date; BLiSS
106
Leading economic indicators
bond yields, building permits, manufacturing activity, stock market, producer price index, layoff rates, avg weekly unemployment claims, change in business inventories
107
Lagging economic indicators
interest rates, unemployment rate, corporate profits, balance of trade, commercial and industrial loans outstanding, inventory/sales ratio, labor cost per unit of output
108
coincident economic indicators
GDP, industrial production index and capacity utilization index, non-agricultural employees, personal income, consumer spending, retail and manufacturing sales,
109
5 year rule
applies only to earnings in Roth IRAs
110
Inactive brokerage account statements
statements required quarterly; active accounts monthly
111
Regulation A
exempt from SEC registration
112
Insider trading
in the case of witnessing insider trading or fraud, a registered representative should inform their supervisor
113
No-load fund
mutual funds sold at their NAV (POP equals NAV); index funds are no-load funds
114
Order approval
supervisors mush approve client orders promptly after execution
115
Nominal yield
equal to coupon; does not change over the life of the bond
116
Current yield
annual interest / bond market price; inverse relationship between CY and bond price - a bond trading at a premium means a CY lower than nominal yield
117
Yield to maturity
calculates the yield if the bond is held to maturity and takes into account the bond gain or loss
118
Yield to call
investor's yield if the bond is called on the first possible call date; premium bond: YTC is lower than YTM, discount bond: YTC is higher than YTM
119
Yield relationships
Discount: YTC > YTM > CY > NY
Premium: NY > CY > YTM > YTC
Par: all yields equal
120
Tender offer
an offer by either the issuer or an outside investor to buy outstanding shares from current investors at a premium. If the offer is oversubscribed, shares are sold proportionally from those who accepted the offer.
121
Federal reserve open market committee
short-term effect: make credit more or less available
| long-term effect: check inflation; stop a recession
122
SIPC Funding
broker-dealer assessments based on a percentage of each firm's gross revenue from securities
123
Oversees blue sky laws
NASAA (north american securities administration association)
124
Vulnerable investors protection
when exploitation is suspected, firms are permitted to place a 15 day hold on distribution of funds or securities
125
Roth IRA contributions
available only to taxpayers who have an income below a certain limit (MAGI below $140K for 2021); 5 year rule starts Jan 1 of the 6th calendar year
126
Traditional IRA RMDs
must be taken in the calendar year required
127
Prelim. prospectus delivery
must be delivered to potential investors no later than 48 hours before sale confirmation
128
FINRA imposed penalties
basically any penalty other than jail time
129
ABLE account tax consequences
after-tax contributions, tax free distributions (federal level)
130
Regulatory authority over 529 plans
MSRB
131
Notice of dividends and stock splits
at least 10 days prior to record date
132
Lowest to highest rates
federal funds rate, discount rate, broker's call rate, prime rate
133
UIT expiration
trust is dissolved, investors cannot reinvest in the same trust; UITs don't have a board of directors
134
Firm allows private security transaction
must monitor the transaction as its own
135
US treasury departments AML
FinCEN, IRS, Comptroller of the currency (OCC), NOT SEC
136
Coverdell Education Savings Account
contribution max is $2k per beneficiary per year
137
First-time homeowner IRA withdrawal
exempt from 10% early penalty and capped at $10k
138
Demand for credit
slow during contraction, increases during expansion
139
Trade balance
difference between exports and imports; trade surplus: more exports than imports; trade deficit: more imports than exports; to increase trade balance, either increase exports or decrease imports
140
Options settlement
T+1
141
Dividend dates
first to last: declaration date, ex-dividend date, record date, payable date DERP
142
Cash-settled transaction
settled same day
143
DNR stock splits
DNR is ignored
144
US Govt Agency Securities
Ginnie Fannie Freddie; second in credit quality to US treasury securities
145
Limited partnership liquidation schedule
secured lenders, general creditors, limited partners, general partner
146
Suspicious activity report
filed with FinCEN within 30 days of the discovery of suspicious activity
147
Qualified Institutional buyer (QIB)
institution must manage a securities portfolio of at least $100MM; broker-dealers with a securities portfolio of at least $10MM are also considered QIBs
148
Mutual fund investment manager compensation
earns annual management fee which is a percentage of the fund's NAV
149
Money market funds
not insured by FDIC
150
Exempt from SEC registration securities
us govt securities, us govt agency securities, securities issued by nonprofits, municipal bonds, commercial paper, commercial bank securities
151
Negotiable security
a security that can be freely transferred, assigned or delivered to another entity
152
Shelf registration
allows an issuer to preregister securities today and sell them at a later date. Good up to 3 years and can only be used for a follow-on offering, not an IPO
153
529 students
must be at least half-time students; penalty is 10% if funds not used on qualified educational expenses
154
CMOs
Collateralized mortgage obligations: MBSs that have been structured by broker-dealers and divided into distinct pieces called tranches
155
street name
endorsing ownership of a stock certificate to a brokerage firm transfers ownership into street name, meaning the securities are now registered in the name of the broker-dealer
156
CDs protected
by the FDIC
157
Mutual funds
prospectus must be provided when sold
158
Corporation brokerage account
must provide a corporate resolution specifying who will have trading authority for the account
159
MSRB G-37
places restrictions on political contributions; if a municipal securities firm makes a political contribution to an official of an issuer, the firm is prohibited from engaging in any negotiated municipal securities with that issuer for 2 years; negotiated underwritings only
160
Private activity bond
municipal issues that may not qualify for a federal or state tax exemption, ie stadiums, executive private jet airports
161
Investment company act of 1940, Investment advisors act of 1940
management investment companies managed under these acts
162
Allocation priority of muni bond funding
Presale, group, designated, member (orders) PaGoDaM
163
FOMC executes open market transactions
trading with a primary dealer
164
FINRA oversight
FINRA is overseen by the SEC and must get approval from SEC on new rules and regulations
165
RR vs. IA
RR: suitability standard; IA: fiduciary duty
166
Statute of limitations on fraud
within 3 years of manipulation and within 1 year of discovery
167
FINRA 5% policy
A policy to help determine the max commission or markup applied to a trade. This is a guide, not a hard-and-fast rule
168
Designated market maker
NYSE specialist - one specialist per NYSE listed security
169
457(b)
participant directed, ERISA, deferred compensation plans sponsored by state or local government entities
170
Insider trading penalties
civil penalties: triple profit fines; criminal penalties: max 20 years in prison, max $5MM fine
171
Most widely quoted bond yield
YTM
172
Retirement plan contributions
non-deductible contributions: after-tax;
| deductible contributions: pre-tax
173
Preliminary prospectus
the first offering document provided by a security issuer and includes most of the details of the business and transaction; also red herring
174
CUSIP number
identification number assigned to all securities; in negotiated sale, underwriter is responsible for requesting CUSIP number
175
Business continuity plan
required 2 emergency contacts; changes to contact info must be reported to FINRA within 30 days; business continuity plan must be reviewed by a registered principal
176
Asset allocation fund
invest in a combination of asset classes: stocks, bonds, cash - this provided portfolio diversification
177
Rule 144
corporate insider may sell the greater of 1% outstanding shares or the average trading volume of the last 4 weeks
178
Investment company act of 1940
covers three basic investment company types: management companies, face-amount certificates, unit investment trusts
179
Anti-money laundering officer
A firm must report a change in officer to FINRA within 30 days
180
Treasury receipts
zero-coupon bonds structured by broker-dealers but backed by cash flows from treasury securities; similar to STRIPS
181
RIA & IARs
RIA: registered investment adviser - individual or firm registered with the SEC; IAR: investment adviser representative - must register at state level
182
Fixed annuities
offer both guaranteed principal and guaranteed fixed interest managed through an insurance company's general account. No risk to investors and therefore fixed annuities are not securities. Individuals selling fixed annuities only need an insurance license, not a securities registration
183
Control relationship
a control relationship occurs when the firm selling the security is controlled by, controls, or is under common control with the issuer. For example, a RR recommends a customer buy shares of his own firm. The relationship must be disclosed to the customer prior to the sale
184
Variable rate demand note
long-term municipal bond which is offered to investors through money market funds. The notes allow a municipal government to borrow money for long periods of time while paying short-term interest rates to investors
185
Syndicate desk
builds an order book and allocates shares of stock
186
Political contributions cap
$250
187
Transfer agent
maintains records of shareholders eligible to take part in a stock split
188
Rights vs Warrants
Rights: usually priced below market
Warrants: longer maturity and usually priced above market
