SIE Flashcards
Pass SIE Exam
1
Q
Cash Dividends
A
Declared by Board of Directors, are a taxable event, declared quarterly
2
Q
Stock Dividends
A
Declared by the company, are not a taxable event, no set schedule. 25% or less increased stock distribution
3
Q
Stock Split
A
> 25% increased stock distribution
4
Q
Forward Stock Split
A
Increases the # of shares outstanding and decreases per share value. Makes stock more affordable to investors
5
Q
Reverse Stock Split
A
Decreases the # of shares outstanding and increases per share value. Keeps a stock from being delisted on exchange due to low value.
6
Q
Dividend or Current Yield
A
Annual Income per Share (Bond)/Market Price per Share (Bond) (put as a %)
7
Q
P/E Ratio
A
Market Price Per Share/Earnings per Share. Is a measure of Valuation
8
Q
Warrants
A
Long term (8-10 yr) option to buy stock, used as a “sweetener”, out of the money at issue
9
Q
Rights
A
Short Term (30-60 days) option to buy stock, in the money at issue, used to maintain % ownership during add’l stock issue
10
Q
Bond
A
Is a debt security, used for Income in a portfolio, par = $1000, interest paid semi-annually. Primary Risk for fixed income is market interest rates. Holders are subject to default risk and reinvestment risk.
11
Q
Serial Bonds
A
All bonds issued on the same date, but mature at different dates; common for Muni GO Bonds
12
Q
Series Bonds
A
All bonds mature on the same date, but issued on different dates. Used when all $ isn’t needed at once, such as for a large project done in phases
13
Q
Corporate Bonds
A
Quoted in 1/8ths, Subject to Federal, State, and Local Taxes. Buyer pays sale price + any accrued interest. Interest accrues on a 30 day month/360 day year basis
14
Q
US Treasury Notes
A
Quoted in 1/32nds, 2-10 year maturity, pay interest semi-annually, accrued interest is on actual/actual basis
15
Q
US Treasury Bonds
A
Quoted in 1/32nds, 30 year max maturity, pay interest semi-annually, accrued interest is on actual/actual basis
16
Q
US Treasury Bills
A
Are Zero-coupon due to short duration, a Money Market Instrument. Quoted on a yield basis.
17
Q
STRIPS
A
Zero-coupon bond that has interest and principal separated and is sold separately at a discount to par. Longer maturity = higher discount
18
Q
TIPS
A
Treasury Inflation Protected Securities, have a fixed interest rate and the principal is adjusted every 6 months for CPI. Not subject to purchasing power risk (inflation risk).
19
Q
Basis Points
A
1 Basis Point = 0.01%. Think of pennies on a dollar
20
Q
Callable Bonds
A
Issuer has the right to call, holder receives a higher coupon rate to compensate for the reinvestment risk. Issuer may call when interest rates drop b/c they can then sell new bonds at a lower rate.
21
Q
Bond Volatility
A
Lower coupon rates and long maturity bonds are more volatile. Zero Coupon bonds with long maturities are the most volatile. Variable rate bonds are the least volatile
22
Q
Purchasing Power Risk
A
Inflation Risk, risk that the funds received at maturity will have less buying power
23
Q
Marketability Risk
A
Risk that the bond will be difficult to sell. A huge issue for Muni bonds
24
Q
Liquidity Risk
A
Risk that a security can only be sold by incurring large transaction costs
25
Legislative Risk
Risk that new tax laws reduce the value of the security. A big issue for Muni bonds
26
Call Risk
Risk that a bond will be called b/c interest rates have dropped
27
Business Risk
Specific to a company, could be impacted based on a change in the market, barriers to entry, new competition, etc
28
Prepayment Risk
Risk that an investor's principal will be paid prior to maturity; mainly for Mortgage Backed Securities (paying off mortgage early, refinancing)
29
Reinvestment Risk
Risk that interest rates fall and coupons will be reinvested at a lower rate. Avoid this using Zero Coupon bonds.
30
Currency Exchange Risk
Risk that the US $ strengthens vs. the currency in which a security is denominated (foreign bonds, ADRs)
31
Political Risk
Risk of investing in foreign countries with weak/unstable political systems
32
Non-Systematic Risk
Risk related to a specific investment. Can be diversified away
33
Systematic Risk
Is the risk that an entire market will drop. Risk remains despite diversification. For bonds, is interest rate risk. For stocks, is market risk. Also includes inflation
34
Preferred Stock
Has a fixed dividend rate based on par, only payable if declared by the board. Can be paid quarterly or semi-annually. Priority for dividends and liquidation. No voting rights. Behaves more like a bond.
35
Commercial Paper
Unsecured Debt from a Corporation, very short maturity (14-90 days), will never exceed 270 days due to SEC registration requirement, sold at a discount and maturing at par (zero coupon). Limited trading, held by institutional investors with excess cash and usually held to maturity. Subject to federal, state, and local taxes. Is a Money Market Instrument.
36
Debenture
Unsecured Corporate Debt, medium to long term, backed solely by the full faith and credit of the issuer.
37
Subordinated Debenture
Lower status than a debenture in a corporate liquidation, pays a higher coupon rate to entice buyers
38
Guaranteed Bonds
Issued by a subsidiary, with the parent company acting like a cosigner. The bond takes on the rating of the parent company (guarantor)
39
Income/Adjustment Bonds
Issued when a corporation enters bankruptcy, done to replace existing bonds. Trade flat (without accrued interest). Only obligate issuer to pay if they have sufficient earnings. Offer a higher yield than standard bonds
40
Conversion Ratio for Convertible Bonds
Par Value of Bond / Conversion Price
41
Convertible Bonds
Can be converted to common stock. Not for the Income seeking investor. Have lower coupon than standard bonds, but have possiblity of capital gains and dividend payments are taxed at a lower rate
42
Government Debt/Bonds
Is safe, has no default risk. Considered "risk-free". Not subject to state and local taxes
43
Mortgage Backed Securities
Loved by investors for safety and higher coupon rates. But, face prepayment risk when interest rates fall
44
Muni Debt
Low default risk, exempt from federal taxes and may be exempt from state/local taxes if purchased in same state of residence, good for people in high tax brackets. Traded OTC, limited market so face liquidity risk
45
Prospectus
Disclosure provided for non-exempt securities
46
Official Statement
Disclosure provided in lieu of a prospectus for exempt securities
47
MSRB
Municipal Securities Rulemaking Board; Regulates BD's and advisers that deal in munis. Does not govern the municipalities themselves
48
Bond Counsel
Looks for validity, legality, and tax-exempt status in a bond issue. Unqualified opinion means everything is ok. Qualified opinion means there are potential issues.
49
G.O. Bonds
Municipal General Obligation Bonds backed by the full faith and credit of the municipality, along with ad valorem (property) taxes at local level, and by income, sales, and excise taxes at state level.
50
Capital Appreciation Bonds
Long-term Municipal Zero-Coupon Bonds, offered when a municipality is near their debt limit as they go onto their books at the discounted value (NOT par). Offered at a large discount to par.
51
Revenue Bonds
Backed by a pledge of revenues from an income generating project, is self-supporting. Ex: toll roads, sewer system, airports, subways, etc. Bonds will also needs to cover maintenance and operations; not just principal + interest. Have a greater default risk than G.O. Bonds, and therefore have a higher yield.
52
Feasibility Study
Performed by an independent consultant for a Revenue Bond, to anticipate revenue collections vs. the costs of the facility. Determines how much $ needs to be raised in the revenue bond issue.
53
BAN
Bond Anticipation Note; S-T Muni Debt used as a "bridge loan" to start a capital project
54
CLN
Construction Loan Note; S-T Muni Debt issued to start the buildin of multi-family housing projects
55
TAN
Tax Anticipation Note; S-T Muni Debt issued in between tax collection periods, borrows against upcoming expected tax receipts
56
RAN
Revenue Anticipation Note; S-T Muni Debt issued to support essential services like public transit, borrows agains upcoming revenues expected to be received from the state or federal gov't
57
TRAN
Tax & Revenue Anticipation Note; combo of TAN and RAN
58
GAN
Grant Anticipation Note; Issued in anticipation of receiving grant $ from the federal gov't for things like pollution control, mass transit, energy conservation, etc
59
Tax Exempt Commercial Paper
S-T Muni Debt that matures in <270 days and is backed by a bank line of credit
60
Muni Bonds
L-T municipal security not very marketable or liquid as they are usually low in inventory and held to maturity. Interest accrues on a 30 day month/360 day year basis
61
VRDN/VRDO
Variable Rate Demand Notes/Obligations; "Step Up"/"Step Down" notes where the interest rate is stepped up or stepped down based on a market index. Limited market; subject to liquidity risk
62
Money Market Instruments
Mature in 1 year or less, principal is not guaranteed. Safe and Liquid, offer low yields. Traded in large units between institutions. Typically have a NAV of $1.
63
Bankers Acceptance
Is a Money Market Instrument used to facilitate the trading of imports and exports
64
Negotiable/Jumbo CDs
Certificates of Deposits, is a Money Market Instrument with a min of $100k face value and maturity of 1-3 years
65
Repo
Repurchase Agreements; are money market instruments where a dealer sells a security with the agreement that the securities will be repurchased at a stated date and price. The Fed Buys under a Repo. Interest rates on Repos track the Federal Funds Rate, which is an overnight loan between banks
66
Reverse Repos
Reverse Repurchase Agreements; are money market instruments where a dealer buys a security with the agreement that the securities will be sold at a stated date and price. The Fed Sells under a Reverse Repo. Interest rates on Reverse Repos track the Federal Funds Rate, which is an overnight loan between banks
67
Investment Companies
Issues Securities to raise capital, and uses the proceeds to select a portfolio of securities, where the investor purchases shares of a pool of securities. Face-Amount Certificate Company, Management Company, Unit Investment Trust
68
Open End Fund
Is a Mutual Fund, a type of Management Company. Must provide a prospectus with each purchase and can only issue stock. Is a non-exempt security. An infinite # of shares are issued continuously, and are non-negotiable (cannot be traded). Share can be redeemed at NAV. Benefit: Diversification, Professional Money Management, Wide Variety of Fund Objectives. Buy at POP, redeem at NAV. Sales Charge only, no Commission. Commissions are only in the secondary market. May charge 12b-1 fees. Must send their financial statements to shareholders 2x/year. Mutual funds can be used as collateral for a margin account after the position has been held in the account for 30 days
69
Closed End Fund
Is a Publicly Traded Fund, a type of Management Company. It can issue stocks or bonds as a one-time issuance. It trades like a stock, according to supply and demand at a market value. May trade at a discount or premium to NAV. Propectus is no longer required once the securities trade in the secondary market. Buy at Ask plus commission, Sell at Bid minus commission
70
Fixed UIT
Fixed Unit Investment Trust, selects a fixed portfolio of unmanaged securities and matures at a fixed date. Is passively managed and therefore has lower fees. Traditionally holds bonds. Does not track an index. Assume this for testing unless otherwise specified.
71
Non-Fixed UIT
Variable Annuity. Invests in mutual funds used within insurance company products. Is used in retirement planning. Inflation risk is a significant concern
72
Diversified Fund
75-5-10 Rule: 75% or more of funds assets invested in securities, a maximum of 5% of funds assets can be invested in one issuer, and a maximum of 10% of the voting securities of one issuer is allowed
73
Growth Fund
Invests in equities of companies growing earnings faster than the average
74
Income Funds
Invests in fixed income securities (bonds, preferred stock)
75
Growth and Income Funds
Provide both dividend income and growth potential
76
Balanced Funds
Invests in stocks and bonds
77
Specialized (Sector) Funds
Invest in a particular industry or geographic area
78
Target Date Funds
Used for retirement savings; asset mix adjusts as the target date gets closer (gets more conservative)
79
Value Fund
Undervalued Stocks with Low P/E ratio
80
POP for a Mutual Fund
Public Offering Price = NAV + Sales Charge. A customer purchasing shares pays the POP.
81
Max Sales Charge on a Mutual Fund
8 1/2%; a mutual fund must offer Breakpoints, LOIs, and Rights of Accumulation to charge the max.
82
Breakpoints
Reduce the sales charge based on purchase amount. Rep must disclose these to the client.
83
LOI
Letter of Intent; letter that states intention to buy more shares, and allows the investor to access a breakpoint and therefore lower sales charge. Can be backdated 90 days and is good for 13 months, inclusive of backdate period. Any asset accumulation or reinvested dividends do NOT count in reaching the breakpoint set in the LOI
84
Rights of Accumulation
Reduces the sales charge using the same schedule as breakpoints, and is based on subsequent fund purchases. Asset accumulation and reinvested dividends DO count. May combine purchases across a fund family or related accounts (immediate relatives, IRAs, etc)
85
12b-1 Fees
Fee to offset costs for marketing, advertising, etc for a mutual fund
86
Class A Shares (Mutual Fund)
Front End Load. Higher Up Front Sales Charge, but no 12b-1. Best for long term investors and larger $ amounts as can take advantage of Breakpoints, LOI, Rights of Accumulation. Lowest ongoing expenses
87
Class B Shares (Mutual Fund)
Back End Load. Deferred Sales Charge that declines over time plus higher 12b-1 fees. Best for intermediate term investors that have lower $ amounts to invest
88
Class C Shares (Mutual Fund)
Level Load. No upfront sales charge, higher 12b-1 fees. Best for short term investors (1-3 yrs)
89
Expense Ratio
Total Expenses/Total Net Assets. The lower the better. Index funds have the lowest expense ratio
90
Subchapter M
IRS code that exempts taxes from a fund. It states that if 90% of the net income of a fund is distributed to shareholders, the funds minds its ex-dividend dates, and distributes annual capital gains, then the fund is "regulated" and does not pay taxes on distributed income. Net losses are not distributed.
91
Priority in Corporate Liquidation
Secured Creditors; Wages/Taxes/General Creditors; Debentures; Subordinated Debentures; Preferred Stockholders; Common Stockholders
92
Management Fee
Largest expense of a mutual fund. It is paid to the Investment Advisor, based on assets under management NOT performance
93
Redemption Fee
Paid in cash within 7 calendar days In-kind redemption pays in securities
94
ETFs
Exchange Traded Funds; closed-end funds that trade like stocks on an exchange, trade at NAV, trade throughout the day, follow an index, are passively managed and therefore have lower expense ratios, and are more tax-efficient
95
Leveraged ETFs
Use derivatives to multiply the performance of the underlying index. Hold for no more than 1 day.
96
Inverse ETFs
Move in the opposite direction of the market. Hold for no more than 1 day.
97
REITs
Real Estate Investment Trusts; "shares of beneficial interest" trade in the secondary market and provide diversification and liquidity. Regulated under Subchapter M. REIT dividends are taxed as ordinary income. Objective: Income and Growth
98
Hedge Funds
Private funds only offered to Accredited Investors: Highly illiquid, high risk, high fees, accredited investors only, high minimums: $1MM+, can only withdraw $ once a year
99
Fund of Hedge Funds
Fund that invests in a portfolio of hedge funds; has 2 layers of fees
100
DPPs
Direct Participation Programs: Limited partnership where a GP manages the business while limited partners are passive investors. The partnership is not taxed, gains and losses are passed through to the partners. Income is considered "passive income" and losses can be used to offset other passive gains
101
Exploratory O&G DPP
Drilling where no one has before; highest risk and highest returns
102
Developmental O&G DPP
Drilling near an existing oil field; moderate risk and return
103
Income O&G DPP
Buy a producing well; low risk and return
104
Primary Market
IPO; issuer raising capital with the help of an underwriter
105
Secondary Market
Trading of issued securities
106
First Market
Trading of listed securities on an exchange floor
107
Second Market
Trading of unlisted securities OTC
108
Third Market
Trading of listed securities OTC
109
Fourth Market
Institutional Trading
110
Broker
AKA Agent; does not maintain inventory, is a middleman, earns commission
111
Dealer
AKA Principal; maintains inventory, is a party to the trade, markup/markdown as compensation
112
Clearing Broker
Ensures that the trade settles correctly; uses many different executing brokers
113
Introducing Broker
Ensure all trades are processed correctly and introduce clients to clearing firm by sending all cash and securities
114
Prime Broker
Consolidate all positions to one place for institutional investors, facilitate reporting and recordkeeping of all transactions, and lower financing costs on margined positions
115
Market Maker
Provide a bid/ask; provide liquidity for clients
116
Day Order
Good until the end of the trading day; if not executed, will expire
117
GTC Order
Good Til Cancelled Order; good until the broker cancels it
118
At the Open or At the Close
Filled at the open or closing price; if not executed, the order gets cancelled
119
Market Order
Guaranteed execution; filled at current market price. No price specified on order
120
Limit Order
Entered out of the money, may or may not be executed.
121
Stop Order
Entered in the money, a tool to buy/sell at a certain price. Often used to limit loss on a short stock position; triggers an order if the market falls (sell stop)/rises (buy stop)
122
Market Not Held
Trader to fill the order that day, at whatever time and price they think is best. Broker does not need discretionary authority, but they must have 3 things: Asset, Action, Amount. Used when bid-ask spread is wide and there are many sellers
123
FOK
Fill or Kill; immediately fill the order, in its entirety, or cancel the order
124
Immediate or Cancel
Fill as much as the order as possible and cancel any remainder
125
All or None
Fill entire order throughout the day or else cancel
126
Accrued Interest
When a bond trade settles, the buyer must pay the seller the purchase price plus any accrued interest. Interest accrues up to but NOT INCLUDING settlement
127
DTCC
Depository Trust and Clearing Corporation; provides clearing, settlement, and trade reporting services for exchanges and OTC markets
128
OCC
Similar to DTCC, but for options. The OCC is the legal issuer an guarantor of all exchange traded options
129
Options Premium
Intrinsic Value + Time Value
130
Intrinsic Value (for an Option)
Amount of the contract that is "in the money"; Current Stock Value - Strike Price
131
Time Value (for an Option)
Value of time through expiration. Longer time = more time value
132
European Style Index Options
Exercisable at expiration; is most common, settle in cash
133
American Style Index Options
Exercisable at any time, settle in cash
134
EPIC
Exporters buy Puts, Importers buy Calls
135
New Customer Account Form
Customer Signature not required; records retained for 6 years. Sent to customer w/i 30 days of account opening and every 3 years thereafter for verification and updating
136
KYC
Know Your Customer: asking questions is your best defense against money laundering. If info is lacking, account still may be opened, but must document and get supervisor approval
137
AML Phases
Anti-Money Laundering Phases: "PLI": Placement, Layering, Integration
138
Bank Secrecy Act of 1970
Defines modern AML rules
139
SARs
Suspicious Activity Reports filed with FINCEN w/i 30 days of discovering potential violation. Required by BSA (Bank Secrecy Act)
140
CTRs
Currency Transaction Reports; report cash transactions of more than $10k to FINCEN w/i 15 days. "Structuring": attempting to evade the reporting threshold with smaller transactions is also reportable
141
Regulation S-P
Limits how personal information (PII) is shared with third parties
142
Regulation BI
Requires BDs to always put customer interests first and disclose conflicts of interest. Focus on Suitability and Obligation
143
Reg BI Suitability Requirements (3)
Reasonable Basis, Customer Specific, and Quantitative Suitability
144
Reg BI Obligations for BDs (4)
Disclosure Obligation, Care Obligation, Conflict of Interest Obligation, Compliance Obligation
145
Form CRS
Customer Relationship Summary. Part of Reg BI, contains info around fees and costs, conflicts of interest, standards of conduct, disciplinary history, details about the firm and rep, link to FINRA's BrokerCheck
146
Customer Statements
Send on quarterly basis at a minimum. If there is activity, send monthly. If there are penny stocks, must provide monthly
147
Senior Citizen Rules
Illiquid and High Risk Investments are a "red flag". Cannot use unofficial designations when presenting to seniors, identify "specified adults", must have a TCP (Trusted Contact Person), if exploitation is a concern, firm may place a 15 day hold for investigation that can be extended an additional 10 days
148
Initial Margin Requirement
50%; set by Federal Reserve via "Regulation T". Minimum equity requirement of $2000.
149
Margin Account Required Agreements
Margin/Hypothecation Agreement + Credit Agreement. Loan Consent Agreement is not required to be signed.
150
Margin Account Maintenance Requirements
Set by FINRA, 25% for a long account; 30% for a short account
151
Special Memorandum Account
Holds excess equity above the 50% initial margin requirement, from a market move in your favor. Can withdraw 100% as a cash loan, or use to purchase/sell short twice the amount of stock
152
Custodial Accounts
Can be opened by any adult for a minor, cash only, only 1 minor and one custodian per account. A portion of the gains will be taxed at the minor's tax rate, and the remainder at the parent's tax rate. Regardless, all taxes are the minor's responsibility.
153
Revocable Trust
Most common form, can be eliminated at any time prior to death by the person who owns the assets (trustor). If trust is revoked, the ownership of the assets reverts back to original owner. The trustee is responsible for managing the trust. The assets are included in the trustor's estate for tax purposes.
154
Irrevocable Trust
Cannot be undone or revoked. Assets will not be included in the grantors estate for tax purposes, the trust is its own entity subject to annual taxation.
155
Joint with Rights of Survivorship (JWROS)
If one party dies, the other person is the sole owner of the account
156
Tenancy in Common
Each party specifies a % interest, if a person dies, their % goes to their estate. Common with business accounts
157
Transfer on Death
Customer maintains control over the account until they die, but upon death the assets transfer to the named beneficiary, avoiding probate
158
Corporate Account
Copy of Corporate Charter is required; the Corporate Resolution states who has trading authorization
159
Partnership Account
Copy of Partnership Agreement is required, it states who has trading authorization
160
Options Account
If customer refuses to disclose any info, it is up to the approving manager to decide whether to open the account. Customer must sign the Options Agreement within 15 calendar days. The Options Disclosure must be delivered no later than the date the account is approved for options trading
161
ERISA
Employee Retirement Income Security Act - does not cover 403b plans for non-profits. Requirements: Available to all eligible employees, must be offered to employees that work 1000+ hrs/yr and with the company 1+ years, and trustee must manage plan in the best interest of all participants. 2 vesting schedules for employer contributions: Cliff vesting or graded vesting
162
Defined Benefit Plan
Pension. What the employee receives is defined by the company. Fully funded by employer.
163
Defined Contribution Plan
401k. What the employee receives is based on contributions to the plan by employer and employee. Is tax deferred, taxed as ordinary income at withdrawal. Employees are not required to participate.
164
401k Withdraw Penalty
Withdrawals prior to age 59 1/2 will incur a 10% penalty + ordinary income tax. Exempt if: Payment of medical expenses > 10% of gross income, death/disability, withdrawals in 5 equal periodic payments, distribution made after leaving the company as long as the separation occured during or after the person reached age 55
165
IRA
Individual Retirement Account. Can contribute up to $7k in 2025 between IRA and Roth IRA. If married filing jointly, the couple can contribute 2x the amount into 2 separate accounts. Contributions can be made until April 15 of the following year and must be from earned income. If there is excess contribution, a 6% penalty tax is impose on excess. Only securities are allowable investments.
166
IRA Catch Up
For tax payers 50+, can contribute an additional $1k/yr
167
Roth IRA
Up to $7k contribution in 2025 between Roth IRA and IRA. All after-tax contributions. If $ is kept in the account for 5+ years, any distributions are not taxable. High earners cannot contribute to a Roth IRA. No RMDs.
168
IRA RMDs
Required Minimum Distributions; 1st distribution must be taken by April 1 of the year following the year that the participant turns 73, then by Dec 31 each year. There is a 25% penalty if RMD is not taken on this schedule. There are no RMDs for Roth IRAs.
169
IRA Rollover
Must be completed within 60 days; limited to 1 per year. Unless distributions from qualified retirement plans are rolled over into an IRA, they are taxable. 20% of the distribution is withheld as a credit against taxes due; if the 20% is not made up in the account, it is considered a withdrawal and will be penalized if not 59 1/2.
170
Non-Qualified Annuity
After tax contributions made on a contract between an individual and an insurance company. Can be a lump sum or period payments, and earnings grow tax deferred, taxable at ordinary income rate. At retirement, distros can be made monthly, lump sum, or randomly.
171
Fixed Annuity
Is an insurance product with a guaranteed rate of return. The insurance co assumes the investment risk. Contributions are placed into a general account. The customer accepts the inflation risk.
172
Variable Annuity
Insurance and security hybrid where the customer assumes the investment risk. No guaranteed rate of return. The insurance company keeps the investments in a separate account. The holder purchases "accumulation units" (not shares) with after-tax dollars that grow tax deferred. Mandatory reinvestment of dividends, interest. Is a retirement funding tool that is taxed on LIFO basis.
173
Variable Annuity Phases
Accumulation and Annuitization. Accumulation is when funds are accumulating as Accumulation Units, Annuitization is when payments are competed and Accumulation Units are being converted and distributed as Annuity Units. Annuity Unit value fluctuates and tends to keep pace with inflation
174
Death Benefit of Variable Annuity
If owner dies during accumulation phase, a beneficiary receives the greater of the amount of the plan or the total amount invested (if owner lost $)
175
Life Annuity
Has highest payout, pays only for investor's life
176
Life Annuity with Period Certain
Pays for a certain period of time, and if the investor lives longer, it pays for the rest of their life
177
Joint and Last Survivor Annuity
Covers 2 lifetimes. Has lowest payout.
178
529 Plan
College savings plan, after-tax dollars grow tax deferred, and can be tax-free if $ is used for qualified education expenses. A one-time gift of 5x the exclusion amount may be given w/o the donor incurring a gift tax
179
Coverdell ESA
Tax advantaged education savings option. Has an annual contribution limit of $2k. Offers more investment options and can be used for broader education expenses like K-12 tuition and tutoring
180
UGMA
Uniform Gifts to Minors Act, once minor reaches "adulthood", the custodial account reverts to his/her name (age depends on the state). Limited to financial assets
181
UTMA
Uniform Transfers to Minors Act, the custodian can specify a transfer age up to age 25 for the custodial account to be turned over to the "new" adult. Greater range of assets: financial, real estate, etc.
182
Securities Act of 1933
Regulates the Primary Market. Has 2 purposes: Requires Companies to publicly disclose all information, and prohibits fraud. Key: Must Disclose. Must Register. Must provide Prospectus.
183
Exempt Issues under Sec Act of 1933
US Govt Issues, Foreign Govt Debt, Insurance cos, non-profit issues, money market issues (270 days or less)
184
Nonexempt Issues under Sec Act of 1933
Corporate stocks, bonds, warrants, rights, options, investment cos and variable annuities, shares of limited partnerships
185
Rule 147
Part of Securites Act of 1933; is an Intrastate Exemption. Exempts securities that are offered and sold to residents within the same state of issue, for businesses that operate within the state and use proceeds within the state
186
Regulation D
Part of Securites Act of 1933; is a Private Placement Exemption. Exempts securities sold to accredited investors and a max of 35 non-accedited investors. Must provide an Official Statement or Offering Memorandum.
187
Accredited Investor
Has Net Worth > $1MM excluding residence, income > $200k or couple income >$300k, an officer or director of the issue, financial institutions or non-profit institutional investors
188
Securities Act of 1934
Regulates the Secondary Market. Focused on BD's. Limits insider trading, conflicts of interest, and market manipulation.
189
Regulation M
Trading by Underwriters is prohibited with one exception: Stabilization of a new issue in the secondary market. The market or market maker may make 1 stabilizing bid that is at or below the POP as an attempt to save the entire offering when the price drops below POP. NEVER can be above POP.
190
SIPC
Securities Investors Protection Act of 1970. Protects investors with limited insurance in case their BD firm goes bankrupt. Covers up to $500k, of which only $250k can be cash.
191
BrokerCheck
Provides portions of U4 data to the public. Discloses employment history, registrations, complaints, disciplinary records, outside biz activities. BD's website must have an obvious link to BrokerCheck, and their annual disclosure must also include it
192
Correspondance
Communication sent to 25 or fewer existing or prospective clients in 30 day period. No FINRA filing, principal approval after comms sent
193
Retail Communications
Sent to >25 existing or prospective clients in 30 day period. May be required to file with FINRA. Subject to prior principal approval
194
Institutional Communications
Only sent to institutional clients. No FINRA filing, principal approval after comms sent
195
EMMA
Electronic Municipal Market Access. Includes: Official Statements, disclosures for municipalities, real-time price and yield info for muni bond trades
196
Political Contributions from MFP/Municipal Firm
No more than $250 per campaign, and MFP must be entitled to vote in that election
197
MFP
Municipal Finance Professional. Registered person who performs financial advisory work or underwritings for a municipality. Does NOT include a rep who sells municipal securities to other humans.
198
Business Cycle
Expansion, Peak, Contraction, Trough, Recovery
199
Recession
If GDP down 2 consecutive quarters
200
Depression
If GDP down 6 consecutive quarters
201
Dovish Stance
Want to stimulate the economy. Tax rates can be cut and government can increase spending. Government can reduce interest rates and loosen credit
202
Hawkish Stance
Want to slow the economy. Tax rates can be increased and government spending can be reduced. Government can increase interest rates and tighten credit
203
CPI
Consumer Price Index. Used to gauge inflation/deflation.
204
Predictors for Recession
Inverted or Flat Yield Curves, Widening of Credit Spread between bond yield and low-risk benchmark
205
Trade Surplus
Exports > Imports
206
Trade Deficit
Imports > Exports
207
Cost Basis
Cost of Security + Commissions
208
Sales Proceeds
$ Received from Sale of Security - Commissions
209
Capital Gains Taxation
Capital losses may be used to offset gains. If security is held 12 months or less, taxed at ordinary income rate. If held 1 year + 1 day, reduced tax rates
210
Capital Loss Deduction
Up to $3k in capital losses may be deducted each year. The remainder can be carried forward.
211
Beta
Measure of a stock's volatility and correlation to underlying index
212
Step up basis on Inherited Securities
Heir's cost basis is the market value on day of death. Automatic L-T status, the estate is subject to estate taxes, heirs are not subject to estate taxes.
213
Gifted Securities
Donor is liable for taxes. Recipients cost basis is the lower of the donor's cost basis or the fair market value at the time of the gift. The recipient will also use the donor's holding period
214
Keynesian Theory
Fiscal policy is the best way to achieve full employment. Federal government should spend $ to ignite the economy. Fiscal = Spending
215
Supply Side Theory
Gov't shouldn't meddle. Reducing Gov't spending and reducing taxes is the key to economic growth. Think: Reduce Taxes
216
Monetarist Theory
Gov't action is ineffective. Monetary policy is the only way to influence the economy. The Federal Reserve uses Monetary Policy, mostly through the management of interest rates. Think: Interest Rates
217
Amortized Bond
Bond premium is reduced for tax purposes, which also reduces the tax basis. The benefit is that the bonds interest is reduced by the same amount for tax purposes.
218
LGIP
Local Government Investment Pools. Are trusts established by local governments that allow municipal entities to invest in a variety of securities with excess funds
219
Trust Indenture Act of 1939
Regulates the offer and sale of certain corporate debt securities. Requires a formal written agreement for bond issues over $50MM. This protects bondholders interests.
220
Shelf Offering
Issuer files a registration for securities but does not sell them immediately
221
Rule 144
Places restrictions on affiliates in the primary market. Includes: Insiders must report control securities trades w/I 2 days, insiders may not short securities, profits made on short swing from control securities trades may have to be returned to the company, insiders are prohibited from participating in speculative option transactions
222
Federal Telephone Consumer Protection Act of 1991
Applies to offers made through the phone, does not apply to U.S. Mail
223
Underwriting Timeline
1. Prefiling: Producing Registration Statement; 2. Filing a Registration Statement, including Preliminary Prospectus; 3. Cooling Off Period of 20 days, all sales are prohibited, but can take indications of interest using Red Herring; 4. Post-Effective Period, final prospectus is filed and company can sell securities to the public
224
Power of Attorney
Durable: continues to be valid if the principal becomes incapacitated; Non-durable: Ceases to be valid and can no longer execute trades on principal's behalf
225
Industrial Development Bonds
Issued by municipalities to build facilities that are leased to corporations. Is a type of revenue bond.
226
Offering price of a Mutual Fund
NAV / (100% - Sales Charge %)
227
Cash Flow Statement
Measure of liquidity
228
Income Statement
Profits and loss over a period of time
229
Balance Sheet
Snapshot of what a business owns and owes; Assets and Liabilities
230
DJIA
30 large cap stocks, most widely quoted, but not representative of overall market
231
S&P 500
500 companies with largest market cap with HQ in the US
232
Russell 2000
2000 small cap companies
233
Nasdaq 100
Top 100 Nasdaq co's, technology based
234
Wilshire 5000
Broadest measure of stock market and includes all listed securities on NYSE and Nasdaq
235
Income Bonds
AKA Adjustment Bonds, issued when a corporation enters bankruptsy, co only has to pay if it has sufficient earnings
236
Transfer Agent
A bank or trust company that records who tracks a company's issue of securities, records who owns what shares and in what form, may be responsible for paying dividends, update changes in ownership, and are allowed to cancel stock certificates surrendered by the seller.
