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1
Q

1035 Exchange

A

A tax-free exchange between like contracts. This provision applies to transfers from annuity to annuity, life to life, and life to annuity. It cannot be used for transfers from an annuity to a life insurance policy.

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2
Q

12b-1 fee

A

A section of the Investment Company Act of 1940 that permits an open-end investment company (mutual fund) to levy an ongoing charge for advertising and sales promotional expenses. This fee may not exceed .75% and, if above .25%, the fund may not describe itself as no-load.

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3
Q

401(k) plan

A

A tax-deferred defined contribution retirement plan offered by a private-sector employer.

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4
Q

403(b) plan

A

A tax-deferred retirement plan available to employees of public schools and certain nonprofit organizations.

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5
Q

529 savings plans

A

Plans designed by states to provide tax-advantaged means of saving for eligible education expenses.

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6
Q

75-5-10 test

A

The standard for judging whether an investment company qualifies as diversified under the Investment Company Act of 1940. 75% of a fund’s assets must be invested in such a way that no more than 5% of its total assets are invested in any one company’s voting securities, and no single investment may represent ownership of more than 10% of any one company’s outstanding voting securities. There are no restrictions on the remaining 25% of the funds assets.

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7
Q

acceptance, waiver, and consent

A

A form of plea bargaining under the Code of Procedure. FINRA’s Enforcement Department brings disciplinary actions against a respondent and, if the respondent agrees, the proposed settlement is accepted, all rights to a hearing are waived, and the respondent consents to the penalty submitted.

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8
Q

Accredited investor

A

Any institution or individual meeting minimum requirements for the purchase of securities qualifying under the Regulation D registration exemption.

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9
Q

Accrued interest

A

The interest that has accumulated since the last interest payment, up to but not including the settlement date, and that is added to the contract price of a bond transaction. See also, flat.

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10
Q

Accumulation stage

A

The period during which contributions are made to an annuity contract.

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11
Q

Accumulation unit

A

An accounting measure used to determine an annuitant’s proportionate interest in the insurer’s separate account during a variable annuity’s accumulation (deposit) stage.

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12
Q

Acid-test ratio

A

A measure of a corporation’s liquidity, calculated by adding cash, cash equivalents, and accounts and notes receivable, but not inventory, and dividing the result by total current liabilities. It is a more stringent test of liquidity than current ratio.

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13
Q

Adjusted (cost) basis

A

Adjusted basis is used to compute the gain or loss on the sale or other disposition of the asset or security.

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14
Q

Adjusted gross income (AGI)

A

Gross income from all sources minus certain adjustments to income, such as deductible contributions to an IRA and net capital losses. It is the amount of income that will be subject to tax.

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15
Q

Administrator

A

(1) the official or agency administering the securities laws of a state. (2) a person authorized by a court of law to liquidate an intestate decedent’s estate.

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16
Q

ADR/ADS

A

Facilitate trading in foreign securities in the US domestic markets. Sometimes these are shown as ADS (American Depository Shares) and are similar to a GDR (Global Depository Receipt), which is traded outside the US.

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17
Q

advertisement

A

Any promotional material where the firm has little control over the type of individuals being exposed to the material.

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18
Q

Advisory account

A

An account through which a registered investment adviser (RIA) or investment adviser representative (IAR) of the RIA provides investment advice to their clients for a fee.

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19
Q

Affiliated person

A

Anyone in a position to influence decisions made in a corporation, including officers, directors, principal stockholders, and members of their immediate families. Their shares are often referred to as “control stock”.

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20
Q

Agency issue

A

A debt security issued by an authorized agency of the federal government. Such issues are backed by the issuing agencies themselves, not by the full faith and credit of the US government (except GNMA and Federal Import Export Bank issues).

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21
Q

Agency transaction

A

A transaction in which a broker-dealer acts for the accounts of others by buying or selling securities on behalf of customers (synonymous with agency basis).

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22
Q

Agent

A

(1) an individual or firm that effects securities transactions for the accounts of others. (2) a securities salesperson who represents a broker-dealer or issuer when selling or trying for sell securities to the investing public; this individual is considered an agent whether they actually receive or simply solicit orders.

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23
Q

Aggregate exercise price

A

The strike price expressed in total dollars. The aggregate exercise price for a standard July 40 call contract is $4,000 (100 shares at $40 per share).

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24
Q

Aggressive investment strategy

A

A method of portfolio allocation and management aimed at achieving maximum return. Aggressive investors pursue aggressive policies, including margin trading, arbitrage, and option trading.

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25
Agreement among underwriters (AAU)
The agreement that sets forth the terms under which each member of an underwriting syndicate will participate in a new issue offering and states the duties and responsibilities of the underwriting manager.
26
Agreement of limited partnership
The contract that establishes guidelines for the operation of a direct participation program, including the roles of the general and limited partners.
27
All -or-none order (AON)
An order that instructs the firm to execute the entire order. Form does not have to execute immediately.
28
All-or-none underwriting
A form of best efforts underwriting in which the underwriter agrees that, if it is unable to sell all the shares (or a prescribed minimum), the issuer will cancel the offering.
29
Alpha
The return on an investment measured against the return of the market as a whole or a certain benchmark index.
30
Alternative minimum tax (AMT)
An alternative tax computation that adds certain tax preference items back into adjusted gross income. If the AMT is higher than the regular tax liability for the year, the regular tax and the amount by which the AMT exceeds the regular tax are paid.
31
American Depository Receipt (ADR)
Facilitates trading in foreign securities in the US domestic markets. Sometimes these are shown as ADS (American Depository Shares) and are similar to a GDR ( Global Depository Receipt), which is traded outside the US.
32
American-style option
An option contract that may be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American-style.
33
Amortization
(1) the paying off of debt in regular installments over a period of time. (2) the ratable deduction of certain capitalized expenditures over a specified period of time.
34
Amortization
(1) the paying off of debt in regular installments over a period of time. (2) the ratable deduction of certain capitalized expenditures over a specified period of time.
35
Amortization of bond premium
An accounting process whereby the initial cost of a bond purchased at a premium is decreased to reflect the basis of the bond as it approaches maturity.
36
Annual compliance review
An annual meeting that all registered representatives and principals must attend, the purposes being to review compliance issues.
37
Annual report
A formal statement issued by a corporation to its shareowners. It is a reflection of the corporation’s financial and operational wellbeing at the close of business year (balance sheet) and earnings performance ( income statement).
38
Annual return on investment (ROI)
For example, the annual return on a bond investment, which equals the annual interest and either plus the prorated discount or minus the prorated premium.
39
Annuitant
A person who receives an annuity contract’s distribution.
40
Annuitize
To change an annuity contract from the accumulation (pay-in) stage to the distribution (pay-out) stage.
41
Annuity
A contract between an insurance company and an individual. Upon annuitization, it guarantees lifetime income to the individual whose life the contract is based in return for either a lump sum or a periodic payment to the insurance company.
42
Annuity unit
An accounting measure used to determine the amount of each payment during an annuity’s distribution stage.
43
Anti-money laundering
A program required to be instituted by all FINRA member firms under FINRA Rule 3011. All personnel are to be trained to identify the different stages of money laundering and how to combat it.
44
Arbitrage
The purchase of securities on one market and the simultaneous resale on another market to take advantage of a price discrepancy. This is not a form of market manipulation and is completely legal.
45
Arbitration
The arrangement whereby FINRA’s Board of Arbitration or a designated arbitration association hears and settles disputes between members, allied members, member organizations, and their employees. Nonmembers in dispute with members or employees may submit voluntarily to arbitration. Once both parties agree to the process, there is no appeal.
46
Arbitration
The arrangement whereby FINRA’s Board of Arbitration or a designated arbitration association hears and settles disputes between members, allied members, member organizations, and their employees. Nonmembers in dispute with members or employees may submit voluntarily to arbitration. Once both parties agree to the process, there is no appeal.
47
Arithmetic mean
The average of a set of numbers, arrived at by adding them together and dividing by the number of terms in the set.
48
Ask
An indication by a trader or dealer of a willingness to sell a security or a commodity; the price at which an investor can buy a security.
49
Assessed value
The value of a property, as appraised by a taxing authority, for the purposes of levying taxes. Assessed value may equal market value or stipulated percentage of market value.
50
Assessment
An additional amount of capital that a participant in a direct participation program may be called upon to furnish beyond the subscription amount. Assessments may be mandatory or optional and must be called within 12 months.
51
Asset
A balance sheet item expressing what a corporation owns.
52
Asset
A balance sheet item expressing what a corporation owns.
53
Asset allocation fund
A mutual fund that splits its investment assets among stocks, bonds, and other vehicles, with a view to provide a consistent return for the investor.
54
Asset allocation fund
A mutual fund that splits its investment assets among stocks, bonds, and other vehicles, with a view to provide a consistent return for the investor.
55
Asset class allocation
Dividing an investment portfolio among different asset categories such as stocks, bonds, cash, and tangible assets, such as real estate, precious metals, and other commodities.
56
Asset-backed security (ABS)
One whose value and income payments are backed by the expected cash flow from a specific pool of underlying assets. Pooling the assets into financial instruments allows them to be sold to investors more easily than selling them individually. This process is called securitization.
57
Associated person
Any employee, manager, director, officer, or partner of a member broker-dealer or another entity (e.g. issuer or bank), or any person controlling, controlled by, or in common control with that member, is considered an associated person of that member.
58
Associated person of a member (AP)
An individual who solicits customers’ orders and is controlled by that member or an introducing broker (IB).
59
Assumed interest rate (AIR)
(1) the bet rate of investment return that must be credited to a variable life insurance policy to ensure that at all times, the variable death benefit equals the amount of the death benefit. The AIR forms the basis for projecting payments, but it is not guaranteed. (2) the rate that a variable annuity separate account must earn to keep annuity payments level. If the account earns more than the AIR, the next payment will increase; if it earns less, the next payment will decrease.
60
Auction market
A market in which buyers enter competitive bids and sellers enter competitive offers simultaneously. The NYSE is an auction market.
61
Authorized stock
The number of shares of stock that a corporation may legally issue. This number is stipulated in the corporation’s state-approved charter and may be changed by a vote of the corporation’s stockholders.
62
Automated Customer Account Transfer Service (ACATS)
A service provided by National Securities Clearing Corporation (NSCC) used by broker-dealers to transfer customer accounts from one firm to another.
63
Automated Quotation System (Nasdaq)
The Nasdaq Stock Market is a US-register stock exchange providing an automatic execution venue. Trade reporting for Nasdaq trades goes through the FINRA/Nasdaq Trade Reporting Facility (TRF).
64
Automatic exercise
A procedure initiated by Options Clearing Corporation (OCC) to automatically exercise in-the-money options upon their expiration.
65
Automatic reinvestment
A feature available to shareholders whereby dividend distributions are automatically reinvested.
66
Back-end load
A few that is charged when mutual fund shares or variable annuity contracts are redeemed. It is typically found with Class B shares (and for one year with Class C shares). It declines annually, decreasing to 0 over an extended holding period - up to eight years - as described in the prospectus. Synonymous with “contingent-deferred sales load”
67
Backdating
The predating of a letter of intent (LOI) by as many as 90 days to allow an investor to incorporate recent deposits for the purpose of qualifying for a sales load discount (breakpoint) on a purchase of open-end investment company shares.
68
Balance of payments (BOP)
An international accounting record of all transactions made by one particular country with others during a certain time period; it compares the amount of foreign currency the country has taken in with the amount of its own currency it has paid out.
69
Balance of trade
The largest component of a country’s balance of payments; it concerns the export and import of merchandise (not services). Debit items include imports, foreign aid, domestic spending abroad, and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy, and foreign investment in the domestic economy,.
70
Balanced fund
A mutual fund whose stated investment policy is to have, at all times, some portion of its investment assets in bonds and preferred stock, as well as in-common stock, in an attempt to provide both growth and income.
71
Balloon maturity
A balloon maturity refers to a large number of an issuer’s bonds that become due at the same time.
72
Bank Secrecy Act (BSA)
The Bank Secrecy Act authorizes the Treasury Department to require financial institutions to maintain records of personal financial transactions that involve the movement of currency in excess of $10k in and out of accounts. It also authorizes the Treasury Department to require any financial institution to report any suspicious transaction. These reports, called suspicious activity reports (SARs), are filed with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
73
Banker’s acceptance (BA)
A money market instrument used to finance international trade. A banker’s acceptance is a time draft drawn on a bank by an importer or exporter of goods, and it represents the bank’s conditional promise to pay the face amount of the note at maturity (normally less than 3 months).
74
Basis
(1) the cost of an asset or security. (2) another term for yield to maturity (e.g. this bond is selling at a 5.78 basis).
75
Basis point
A measure of a bond’s yield, equal to 1/-00 of 1% of a yield. A bond whose yield increases from 5.0% to 5.5% is said to increase by 50 basis points. A basis point is equal to 10 cents.
76
Basis quote
The price of a security quoted in terms of the yield that the purchaser can expect to receive.
77
Benchmark portfolio
A model portfolio of a large number of assets, such as the S&P 500, against which the performance of a fund or portfolio is measured.
78
Formula for Current Yield (CY) Stocks and bonds
Annual income (in dollars)/current market value = CY
79
Formula for capital gains and capital losses
Sales proceeds - adjusted cost basis = (capital gains if a positive number, capital losses if negative)
80
Total return
A measure of the return an investor receives from an investment that includes both income and any gain or loss realized.
81
Total return
A measure of the return an investor receives from an investment that includes both income and any gain or loss realized.
82
Formula for total return
Total return = (income + gains or - losses) / cost basis
83
Ordinary income
Combined: earned income, investment income, and passive income. It is ordinary income that is used to determine the income tax rate that an investor will pay.
84
Four Stages of the Business Cycle
1. Expansion 2. Peak 3. Contraction 4. Trough
85
Leading economic indicators
- Money Supply (M2) - Building permits (housing starts) - Average weekly initial claims for state unemployment compensation - average work week in manufacturing - new orders for consumer goods - machine tool orders - changes in inventories of durable goods - changes in sensitive materials prices - stock prices (as measured by by the S&P 500 Index) - changes in business and consumer borrowing
86
Cyclical industries (highly sensitive to business cycles) Tend to do well in expansions and poorly in contractions
- steel - auto - heavy equipment - capital (durable) goods (washers, dryers, etc)
87
Noncyclical (defensive) industries (necessities) Least affected by business cycles
- food - utilities - clothing - drugs - tobacco - liquor/alcohol
88
Countercyclical industries Rise when economy turns down
Products people but when scared and looking for safety. - gold mining and refinement
89
Net worth (shareholder equity)
- preferred stock (funds received) - common stock (par value of) - capital in excess of par (money in excess of stock par) - retained earnings ( earnings not paid as dividends)
90
Working capital
The amount of money that a company can spend (or lose) and remain operational. Current assets- current liabilities = working capital (as $ amount)
91
Current ratio
Better figure to use when comparing liquidity of companies. Current assets / current liabilities = current ratio [expressed as ratio (i.e. 2:1)]
92
Acid test ratio (aka quick ratio)
The test of a company’s liquidity if everything goes really bad. (Current assets - inventory) / current liabilities = acid test ratio [expressed as a ratio (i.e. 1.1:1)]
93
Debt ratio (used for long-term solvency)
A measure of how much of a corporation’s net worth is derived from long-term debt. A CORP WITH A DEBT RATIO HIGHER THAN THE INDUSTRY AVERAGE IS SAID TO BE “HIGHLY LEVERAGED”. Long-term debt / (long-term debt + net worth) = debt ratio (expressed as a %)
94
Earnings per share (EPS) [used for income analysis]
Earnings available to the common shareholder / number of outstanding shares
95
Price-to-earnings ratio (used for income analysis)
Current Market value (CMV) / EPS = P/E ratio
96
Federal funds rate
The rate that the commercial money center banks charge each other for overnight loans of $1 million or more. Considered a barometer of the direction of short-term interest rates, which fluctuate constantly, and it can be the most volatile rate in the economy.
97
Federal funds rate
The rate that the commercial money center banks charge each other for overnight loans of $1 million or more. Considered a barometer of the direction of short-term interest rates, which fluctuate constantly, and it can be the most volatile rate in the economy.
98
prime rate
The interest rate that large US money center commercial banks charge their most creditworthy corporate borrowers for unsecured loans.
99
Broker call loan rate
The interest rate that banks charge broker-dealers on money they borrow to lend to margin account customers
100
Discount rate
The rate the Fed charges for short-term loans to member banks. Indicates the direction of FRB monetary policy - a decreasing rate indicates easing, an increasing rate indicates tightening

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