section 1 of exam Flashcards
(35 cards)
What securities are exempt from registration?
gov/muni bonds
commercial paper
banker’s acceptances
bank issues
non-profit and small business issues
What are different types of underwriting?
Firm commitment: syndicate absorbs losses
Best Efforts: unsold shares returned to issuer
All or None: offering is cancelled if all shares are not sold
Mini-Maxi: offering cancelled if minimum is not sold
Standby: Syndicate buys shares not purchased
What is Reg A and what are the different requirements to qualify for Tier 1 and 2?
Tier 2: max offering of $75m over 12 mo with no more than $22.5m offered by selling shareholders
What is a stabilization bid and how many are allowed?
supports a new issue’s price and keeps it from falling, one stabilization bid is allowed.
Only form of price manipulation that is allowed by the SEC
What are the three main obligations in FINRA’s suitability rule?
reasonable basis
customer-specific
quantitative
When should a CTR be filed?
whenever cash deposits exceed $10k (even when SAR is also filed)
What is ERISA?
prohibits aggressive derivative strategies, but conservative options strategies are permissible
What is a day trade, and who is considered a pattern day trader?
-purchase and sale of the same security on the same day in a margin account not permitted in cash accounts
-any customer executing 4 or more day trades over a 5 business day period
What is the UPIA?
Uniform Prudent Investor Act
-acknowledges that there are no categorical restrictions
-identifies investors’ objectives to diversify portfolios
-indicates that a custodian can authorize discretion to a third party
When is a registered rep NOT required to notify the member firm when opening an account at another firm?
do not obtain written consent from employing firm/notification of employment if transactions only involve:
-registered investment company securities (mutual fund shares)
-variable contracts (variable annuities)
-UITs
-municipal fund securities (529s)
What is communication vs correspondence?
-retail communications are available to 25 retail clients over a 30 day period
-approval not required unless a recommendation is made
-institutional communications are only with institutional investors (no approval required)
-correspondence is messages available to 25 or fewer retail clients over 30 day period
What is a CMO?
Collateralized mortgage obligation
-multi-class debt instruments backed by a pool of mortgage-related securities
When can a report be published after an IPO and follow on offering?
-10 calendar days after IPO
-3 days after follow on only for manager and co-manager
When does retail communication need to be filed with FINRA?
-new brokerage firm must file 10 days prior to use for the first year
-communication making recommendations/promotes product or service
-DPPS, CMOs, investment companies (variable insurance, mutual funds, closed-end funds, UITs, ETFs
hypotheticals of variable life insurance policies must follow these guidelines:
-assumed rate of return cannot exceed 12%
-one of the assumed rates of return must be 0%
-assumed rates must be reasonable based on current market conditions
-statement explaining that results are not predicted
What must an investment company invest in?
a company with a name that suggests an emphasis (eg stock fund) must invest at least 80% of assets in the type of security indicated by its name
What is the wash sale rule?
if an investor sells a security for a loss and makes another purchase of substantially the same security, the loss will be disallowed for taxes
What is a bond’s basis?
YTM, will be earned if an investor holds the bond to maturity
What is the dated date of a bond?
interest begins to accrue for a new bond, like it’s date of birth
For callable bonds, what yield is included on the trade confirmation?
YTM or YTC, whichever is lower
-if bonds are trading at a discount, YTM will be lower
-if bonds are trading at a premium, YTC is lower
What is the order of liquidation
secured creditors (equipment trust certificate holders)
unsecured creditors (debenture holders)
preferred stockholders
common stock holders
If there is a stock split or dividend and the shares have a non-dilutive feature, what happens to conversion ratio and price?
conversion features are adjusted
-%x old ratio=new shares+old ratio=new ratio
- 1000 par/new conversion ratio=new price
What is the difference between BAs and ADRs?
BAs help facilitate foreign trade by financing trade between importers and exporters
ADRs permit trading of foreign stocks in the US
What are Eurodollars?
US dollars on deposit in all foreign banks
principal and interest paid in USD, issued outside of the US
