Series 65 Flashcards by Andy Grisham

What is an Agency Cross Transaction?

When is it prohibited?

When an investment adviser, affiliated with or under control of a BD, represent both sides of a transaction. Advisory fees and commissions are earned.

Prohibited when the securities have been recommended to both parties by the adviser. Written client approval also required.

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Working Capital =

Current assets - current liabilities

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When is a Broker Dealer not defined as such.

When they have no place of business in the state and it’s only business is with institutions, other BDs and underwriting issuers. There is no de minimis exemption, so any solicitation of individuals would require registration in said state.

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Correlation coefficient between 2 securities that offers the most diversification.

Coefficient between 2 securities with no correlation.

-1

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When registering a security under the uniform securities act, what 5 things must be included.

Amount of securities to be issued
States it will be offered in(but not the amount)
Adverse judgements
Anticipated effective date (actually date is decided by the SEC or Admin.)
Anticipated use of proceeds

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Does a BD need to be registered in every state they do business in?

Yes. Both the BD and Agent must be registered in the state the client is a resident of.

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What is rescission?

How long does the customer have to accept or deny the rescission?

Return of a customers money plus interest and minus any money received from the investment. Customer has 30 days to accept or reject, then all rights of recovery are forfeited.

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What are the two exemptions to the adviser brochure disclosure under IAA act 1940

If the client is an Investment Company (Open and Closed end)

If the advice being rendered is impersonal and is less then $500

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What’s is the Internal Rate of Return (IRR) and what is it used for.

IRR is the discount rate that’s makes the future value of an investment equal to its present value.
So there must be a maturity date or some time of end date for this to be calculated.

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Under the NASAA model custody rule, What are the 2 instances when it is unlawful for an IA to have custody of client funds.

Administrator, by rule, prohibits it.

If no rule is in place, IA fails to notify the Admin he has or may have custody

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When can an IA lend money to a customer?

Only when the loan is made through a regulated lender such as an affiliated BD or affiliated bank.

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What is the difference between an Administrators rule and an Administrators order?

Rules apply to everyone

Orders apply to specific BDs or IAs

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Gross Profit =

Sales(Revenues) - Cost of Goods Sold

When depreciation expense is directly related to equipment used in production of the sales, it is included in the COGS

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Andy committed a felony in state A. That crime is only considered a misdemeanor is state B. If applying for an agent role in state B. The Administrator will consider the crime a…?

Felony. Due to lack of uniformity in date criminal laws, the Administrator can only go by what is on the persons record.

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What are the 5 basic items, if received as soft dollar compensation, that qualify for Section 28(e)’s safe harbor.

Research reports analyzing a specific company or stock
Financial newsletters
Analytical software
Seminars/Conferences/etc
Effecting and clearing trades

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An agent of a BD is leaving his company for another BD, who must notify the Administrator?

All parties. The BD, the agent, and the new BD.

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BDs with an office in the state must register regardless of…

Their clientele (Institutions, other BDs, banks, etc.)

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Under the USA, when can an unregistered agent of a BD sell securities?

Never, it’s is unlawful for a person to transact business on behalf of a BD unless registered as an agent. Only individuals selling on behalf of an issuer may qualify for an exemption.

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BDs, and the secondary market at large, are regulated by what Act?

Securities Exchange Act of 1934

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BDs must retain records for ___ years?

IAs must retain records for ___ years?

3 years for BDs

5 years for IAs

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Under the Uniform Securities Act, the following 4 are excluded form the definition of an offer or sale.

Bona fide pledge or Loan
2-Act incident to a judicially approved reorganization where securities are issued in exchange for outstanding shares
Gift of nonassessable stock
Stock dividends and splits

BAGS

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How many days does a registered person have to appeal any disciplinary finding by the administrator?

60 days

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Penalties for criminal offenses under the USA carry what maximums and statute of limitations?

5-5-3

5 year statute of limitations, $5000 max fine, 3 year max jail time.

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A Wrap Fee account is?

An advisory program generally established by a BD under which a specific fee/fees, not based on transactions in a clients account, is charged for advisory services and the execution of client transactions.

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1. The specialist (Designated Market Maker) keeps an orderly market on the _________________. 2. The market maker keeps an orderly market on the _________________.

1. Floor of an Exchange | 2. Over-the-counter market

What are Rights (preemptive rights) and Warrants? And is each listed above or below current market value? Which may trade on the secondary market?

When new stock is being issued, rights are given to existing stockholders allowing them to purchase more shares so their equity share is not diluted. Issued below market value. Warrants are essentially an option to buy shares at a specific price, long time horizon, issued above market value. Both originate with with issuer, and both may trade on the secondary market.

Section 1031 of IRS code allows for…

TAX FREE exchange of one property for another. Deferring gains until final disposition of property.

Tactical vs Strategic Allocation

``` Tactical allocation (active) involves active trading and high transaction costs. Passive allocation (passive) involves setting target asset mix and rebalanced periodically. ```

A _____ - End investment company is the only type that can trade at both a discount or premium? Why?

Closed - End investment company since price is determined be supply and demand. Open - End funds can never have a price below the NAV

Dividend are taxed at a maximum rate of ___%

15%

Under USA, the statute of limitations for civil liability is…?

3 years from the date of the event or 2 years from discovery, whichever occurs first.

Bond Pricing: Corporate and Municipal Bonds Each % point = $10 The fractional points are ___/___ Government Bonds Each % point = $10 The fractional points are ___/___

Corporate and Municipal Bonds 1/8th or $1.25 Government Bonds 1/32nd or $0.3125

For federal advisers, a substantial prepayment of advisory fees is more than $____, ____ or more months in advance. For state advisers, a substantial prepayment of advisory fees is more than $____, ____ or more months in advance.

More than $1200, 6 months or more in advance. More than $500, 6 months or more in advance.

Under investment Advisers Act of 1940, Investment Advisors must retain records for ___ years. Records must be kept in the principal office of the IA for ___ years, and are subject to SEC examination at anytime.

5 years for IA records | 2 years in the principal office

Blue-Sky laws are…?

State Security laws Ex. Uniform Securities Act 1956 (USA)

At what age do catch up provisions for IRA and Roth IRA’s start? How much additional $ can be contributed.

50yrs old $1,000 more, on top of the $6,000 normal limit ($7k total)

Keynesian economic view is…?

Active government intervention in the marketplace is the best method for economic growth and stability

Securities guaranteed by someone other than the issuer guarantee the payment of 1._____ and 2._____ on debt securities and 3._____ on equities. They don not against loss of 4.____ on equities.

1. Principal and 2. Interest 3. Dividends 4. Principal

The ____ has the powers to close down a stock exchange for ____ days if notice is given to ____ ?

SEC 90 President of the United States

When must a solicitor be registered as an IAR when soliciting new clients for an IA? When do they not have to be registered?

When they are employed by the IA. When they are a 3rd party, and not subject to statutory disqualification.

A corporations capital structure consists of ________ + ________

Long term debt + shareholders equity Cash is not included

The two types of 529 plans are…?

Prepaid tuition plans and | College savings plans

The quick ratio (also know as the______ ratio ) = ?

Acid Test Ratio (Current assets - inventory) / Current Liabilities

When an option expires, the _____ is obligated to perform. When a futures contract expires, the _____ and _____ are obligated to perform.

Seller (short) Buyer and seller (long and short)

Formula for CAPM is…?

=Rfree + beta(market return - Rfree)

All qualified corporate retirement plans must be established under a ______ , and are either _______ or _______ plans.

Trust Agreement Defined Benefit or Defined Contribution

Interspousal gifts of any amount between US citizens are subject to __% gift taxes. Individuals may give up to $_____ per year per individual tax free, or $____ over the lifetime of the individual. Gift tax is always the responsibility of the ______.

0% $15,000 $11.4M Donor

Changes to a Form U4 must be filed within _____? The form U4 is used by _____ to ______?

30 days IAR's Register

The 5 exempt transactions are...?

Unsolicited Transactions Underwriter Transactions Bankruptcy, Guardian, Conservatorship, etc. Institutions Limited Offerings (Private Placement) 10 or fewer oferees in the past 12 mo Isolated Non-issuer transactions UUBILI

Negotiable CDs (also known as ______ CDs) are _____ obligations of the issuing bank and usually have maturities from ___ - ___ yrs. Their minimum denominations are ______?

Jumbo CDs unsecured 1-10yrs $10,000

The federal law dealing with privacy matters for financial institutions is...?

Regulation S-P

What part of the Form ADV is acceptable in place of a firm's brochure?

ADV Part 2A and 2B

Commissions, Markups, markdowns, and advisory fees are ______ required to be disclosed according to the NASAA fee disclosure template.

NEVER

Tax Equivalent Yield =

Coupon Rate / (100%-Tax Rate)

A positive Yield curve is the result of investors _____ short-term bonds and _____ long-term bonds

Investors buying short-term bonds and selling long-term bonds

DDA stands for?

Direct Deposit Account (a bank checking account)

The two major risks faced by DPP(Direct Participation Programs) are _____ and _____.

Legislative Risk and Liquidity Risk

When protecting a gain, a sell ____ order is preferred over a _____ order.

stop limit

______-registered advisers who do not deliver a brochure at least ____ prior to contract signing must offer a ____ penalty free withdrawal period. There is no similar policy for _____ advisers.

State-Registered 48 hours 5-day There is no similar policy for federal advisers

Under the uniform securities act (USA), only the following 3 are not considered persons.

Minors (Kids) Deceased person Mentally Incompetent Person

Regulation S-P uses two terms: _____ and _____ The regulation requires....?

Customer and Consumer firms take identity theft seriously and have adequate safeguards in place to protect nonpublic information.

________ is the use of content or a link that is solely the creation of someone else; your firm is just using it. _______ is when the firm had a role in the creation of the material.

Adoption Entanglement

TOD (transfer on death) avoids _____ but not _____.

Avoids probate but not estate taxes.

The discounted rate that equates a bond's cash flow to its current price is known as the bond's_____?

Yield to Maturity

A 60 yr old couple plans to retire in 5 years, their time horizon is _____yrs?

Their time horizon is their life expectancy, or around ~30yrs.

Tenancy by the Entirety (TBE) can only be created by _____persons and gives each cotenant an ______ interest in the account. Most important difference between the TBE and a JTWROS/TIC is that …..?

Married Undivided Interest the consent of both tenants is required before one can sell or give away their interest in the property.

________ theory compares the number of stocks advancing versus those declining, generally on the New York Stock Exchange. As such it is a good measure of_________?

The advance/decline the breadth of the market.

The administrator has a maximum of _____ after termination to initiate any actions. In the absence of any action by the Administrator, the effective date of a registration is noon of the _____ day after the filing of a complete application.

1 year 30th

The Prime rate is...?

the interest rate used by banks, usually the interest rate at which banks lend to customers with good credit. The rates for mortgages, small business loans, and personal loans are based on prime.

IA-1092 expanded the definition of ______'s and their activities. Under the release, the rendering of advice does not have to be a person's __________. Rather, it must be a ________, and compensation may be received _____ or ______.

Investment adviser a person's principal activity Regular activity Directly or indirectly

Shareholders Equity =

Total Assets - Total Liabilites

When opening an options account the completed option agreement does NOT need to be returned prior to entering an order; under current rules, the agreement must be signed and returned by the customer within ___days of account approval.

15 days

Under what circumstances would an Agent of a BD and IA NOT have to obtain client consent when acting in a principal capacity?

When the trade that is made is unrelated to the advisory relationship.

What is hypothecation?

The process of agreeing to use an asset as collateral in exchange for a loan

What is the Sharpe Ratio? What is it's formula?

The Ratio is the average earned return in excess of the risk-free rate per unit of volitivity or total risk. Sharpe Ratio = ( PortfolioReturn - RiskFreeRate ) / Standard Deviation of Portfolios Excess Returns

Registration of IAR's is done solely on the ______ level. IAR's register with the ______ of every place they are required to be registered.

State level Administrator

A variable life policy may be exchanged for a whole life policy (or similar form of permanent insurance) at any time during the first ______. The same ____ and _____ will be used from the original issue, regardless of_____.

24 months Age and Medical Condition current health

An investment adviser firm organized as a general partnership must notify its clients of the departure of a general partner within_______

A reasonable time

A country's balance of payments measures all the nation's imports and exports with those of other countries for the year. All payments and liabilities to foreigners are ______, and all payments and obligations received from foreigners are _____.

Debits Credits

Opening a margin account involves significant documentation. It is the Credit Agreement that discloses what 3 things?

1. The terms of the credit extended by the broker-dealer, including 2. the method of interest computation and 3. situations under which interest rates may change

Series 65 Flashcards

(80 cards)