Series 7 Definitions Flashcards
Uniform Practice Code
The Uniform Practice Code sets a standard how broker dealers conduct business with each other.
(Settlement, payments, deliveries etc)
Limited Power of Attorney/ Limited Trading Authorization
If a customer wants to allow a firm or representative to make investments on their behalf without requiring their prior consent, the customer will have to sign a Limited Power of Attorney/ Limited Trading Authorization to document the authority. The customer is bound by the purchases and sales made on their behalf. A discretionary account must be reviewed more frequently to safeguard against abuse and all transactions must be suitable for the customer based on the customer’s investment objectives.
Excess Equity (EE)
Excess Equity (EE) is the value of a margin account’s equity in excess of Reg. T
5 Percent Markup Policy
FINRA’s guidelines, which require all prices paid by customers to be reasonably related to a security’s market price. The 5 percent policy is a guideline, not a rule, and does not apply to securities sold through a prospectus.
Interpositioning
Interpositioning is the placing of another broker dealer in between the customer and the best market. Interpositioning is prohibited, unless it can be demonstrated that the customer received a better price because of it
Pass Through Certificate
Pass Through Certificate is a security that passes through income and principal payments made to an underlying portfolio of mortgages. GNMA is one of the biggest issuers of this type of security.
Restricted Account
Restricted Account is a margin account that has less than 50% equity but more than 25% equity.
The Trust Indenture Act of 1939 requires a contract between the issuer and the trustee who will act to protect the interests of the bondholders. In the event of default the Trustee will take possession of any collateral that was pledged to back the bond and liquidate it to pay off the bondholders
Trust Indenture Act of 1939
Assumed Interest Rate (AIR)
Assumed Interest Rate (AIR) is
(1) A benchmark used to determine the minimum rate of return which must be realized by a variable annuity’s separate account during the pay out phase in order to keep the annuitant’s payments consistent, or,
(2) In the case of a variable life insurance policy, the minimum rate of return which must be achieved in order to maintain the policies variable death benefit.
Trade Confirmation
Trade confirmation is the printed notification of a securities transaction.
A confirmation must be sent to a customer on or before the completion of a transaction. ( the settlement date)
Maloney Act of 1938
An amendment to the Securities Exchange Act of 1934 that gave the NASD the authority to regulate the over the counter market. The NASD is now part of FINRA.
Today the OTC market has developed in to a very efficient electronic exchange known as NASDAQ as well as into other markets where shares of less established issuers are traded.
Schedule 13D (Form 13D)
Schedule 13D is a form that must be filed with the SEC by any individual or group of individuals acquiring 5% or more of a corporation’s non-exempt equity securities. Form 13 D must be filed within 10 days of the acquisition
Will declare the investor’s intentions and basis for acquiring such a large percentage ( Passive, Change company, buy outright etc )
Head and Shoulders chart pattern
A chart pattern that indicates a reversal of a trend. A head and shoulders top indicates a reversal of an uptrend and is considered bearish. A head and shoulders bottom is the reversal of a downtrend and is considered bullish
Group Net Order
Group Net Order is one where the sales credit for the order is shared by members of the syndicate, based on their participation.
In an effort to ensure that a client’s order gets filled a syndicate member may elect to share the commission for selling the bonds with the members of the syndicate by designating the order as a group net or syndicate order.
Bond Buyer Indexes
Bond Buyer Indexes are a group of yield based municipal bond indexes published daily in the Daily Bond Buyer
When the indexes rise, they indicate rise in yield ( bond prices in the index are falling )
Gross Revenue Pledge
Gross revenue pledge is a flow of funds pledge for a municipal revenue bond that states that debt service will be paid first.
Order Book Official (OBO)
Order Book Official (OBO) is an employee of the CBOE who is responsible for maintaining a fair and orderly market in the options assigned to them and for executing orders that have been left with them.
Unlike DMM cannot trade for their own account.
BAN CLN GAN RAN TAN TRAN
Bond anticipation notes (BANs) – Notes issued by a governmental unit, usually for capital projects, that are repaid from the proceeds of the issuance of long-term bonds.
Construction loan notes (CLNs) – Notes issued to fund construction of projects (typically housing projects).
Grant anticipation notes (GANs) – Notes issued on the expectation of receiving grant funds, usually from the federal government.
Revenue anticipation notes (RANs) – Notes issued in anticipation of receiving revenues at a future date.
Tax anticipation notes (TANs) – Notes issued in anticipation of future tax receipts, such as receipts of ad valorem taxes
Tax and revenue anticipation notes (TRANs) – Notes issued in anticipation of receiving future tax receipts and revenues at a future date.
Commercial paper (CP)
Commercial paper (CP) – Short-term obligations issued by municipal entities usually backed by a line of credit with a bank that mature within 270 days. The issuer typically pays maturing principal of outstanding commercial paper with newly issued commercial paper, referred to as a “roll over,” thereby borrowing funds on a short-term basis for an extended period of time. Rate reset periods may vary from one to 270 days and different portions of a single issue of commercial paper may simultaneously have different reset periods.
Preliminary Prospectus / Red Herring
Preliminary Prospectus / Red Herring is a document used to solicit indications of interest during the cooling off period for a new issue of securities.
All of the information in the preliminary prospectus is subject to revision and change.
The cover of a preliminary prospectus must have a statement saying that the securities have not yet become registered and that they may not be sold until the registration becomes effective. This statement is written in red ink and that is where the term “red herring” comes from.
Joint tenants in common /JTIC
Joint tenants in common /JTIC is a joint account where the asset of a party who has died transfers to the decedent’s estate, not the other tenant.
Crossing Stock
Crossing stock is the pairing off of two offsetting customer orders by the same floor broker. The floor broker executing the cross must first show the order to the crowd for possible price improvement before crossing the orders.
Blotter
Blotter is a daily record of broker dealer transactions.
There are several yypes of blotters: receipt and delivery of securities; purchase and sale of securites; receipt and disbursement of cash.
All blotters are considered records of original entry.
They must be posted, i.e.: updated, no later than one business day after the event and copies must be kept for 6 years.
Banker’s Acceptance (BA)
Banker’s acceptance is a letter of credit that facilitates foreign trade. BA’s are traded in the money market and have a maximum maturity of 270 days.
It is almost like a post dated check. If the exporter wants to obtain the funds immediately they may sell the BA in the money market at a small discount to its face value or it may hold the BA until its maturity or payment date.
