Series 7 Major Key Study Guide

Achieving a Better Life Experience (ABLE) Accounts

The ABLE Act limits eligibility to individuals with significant disabilities where the age of onset of the disability occurred before turning age 26. In this light, remember that one need not be under the age of 26 to be eligible to establish an ABLE account. One could be over the age of 26, but as long as the onset of the disability occurred before age 26, they are eligible to establish an ABLE account.

Fixed-Dollar

Thus, the fund liquidates enough shares each period to send that sum. The amount of money liquidated may be more or less than the account earnings during the period.

Open Interest (Options)

number of contracts outstanding ****Like shares outstanding for options. The higher the open interest the more liquid the option is****

Revenue anticipation notes (RANs)

offered periodically to finance current operations in anticipation of future revenues from revenue-producing projects or facilities.

Money purchase plans

Money purchase plans are the simplest of the qualified defined contribution plans. Any employer who meets funding requirements may offer such a plan. The employer simply contributes a specified fraction of the employee's compensation up to an indexed maximum.

Pricing Preferred Stock *Test Topic*

Preferred stock represents ownership in a company like common stock, but its price is sensitive to interest rates—just like the price of a bond. Although it is a fixed-income investment, preferred stock, unlike bonds, has no preset date at which it matures and no scheduled redemption date or maturity value.

Profit-sharing plans

Profit-sharing plans are a popular form of a defined contribution plan. These plans do not require a fixed contribution formula and allow contributions to be skipped in years of low profits.

Fixed Assets

Property, plant and equipment. Shit that can't be converted to cash quickly. Fixed assets wear out over time and can be depreciated.

Earnings Before Taxes (EBT)

Same thing as EBIT but with interest accounted for

Restricted securities

Securities acquired through means other than a Registered Public Offering. Private placement securities are restricted Restricted issues must be held for a period of 6 months before they have been held and fully paid for 6 months. After holding period, volume limitations apply to only affiliated members

Hold in Street Name

Securities are registered in the BD's name and held by the BD. Although the BD is the securities' nominal owner, the customer is the beneficial owner.

Transfer and Ship

Securities are registered in the customer's name and shipped to them.

Transfer and Hold in Safekeeping

Securities are registered in the customer's name, and the BD holds them in safekeeping.

Adjustable-Rate Preferred

Some preferred stocks are issued with adjustable/variable dividend rates. ****Such dividends are usually tied to the rates of other interest rate benchmarks, such as Treasury bill and money market rates, and can be adjusted as often as semiannually.****

Support and Resistance Levels

Stock prices may move within a narrow range for months or even years. The bottom of this trading range is known as the support level; the top of the trading range is called the resistance level. ***When a stock declines to its support level, the low price attracts buyers, whose buying supports the price and keeps it from declining farther. When a stock increases to its resistance level, the high price attracts sellers, whose selling hinders a further price rise. Stocks may fluctuate in trading ranges for months, testing their support and resistance levels. If a particular stock's price penetrates either the support or the resistance level, the change is considered significant.***

Treasury Securities

T-bills, T-notes, T-bonds

Maximum Gain (Long Call)

Theoretically, the potential gains available to call owners are unlimited because there is no limit on the rise in a stock's price.

Auction Rate Securities (ARS)

Typically issued by municipalities, nonprofit hospitals, utilities, housing finance agencies and universities, auction rate securities (ARS) are long-term, variable-rate bonds tied to short-term interest rates. ****With long-term maturities of 20 to 30 years, the interest rates are determined using a Dutch auction method at predetermined short-term intervals, typically 7, 28, or 35 days****

Depreciation Recapture

When a partnership unit is sold, recapture may apply if the partnership has been depreciating its fixed assets using accelerated depreciation. If, at the time of sale, the business had taken depreciation deductions in excess of what would have been taken had the partnership been using the straight-line method, that difference is subject to ordinary income tax. ****Clearly, depreciation recapture is not a tax advantage.****

FOREIGN CURRENCY OPTIONS

allow investors to speculate on the performance of currencies other than the U.S. dollar or to protect against fluctuating currency exchange rates against the U.S. dollar.

CASH FLOW

defined as net income or loss plus noncash changes (such as depreciation).

Tax-exempt commercial paper

is often used in place of BANs and TANs for up to 270 days, though maturities are most often 30, 60, and 90 days.

Negotiated Underwriting

municipality appoints an investment banker to underwrite the offering. The underwriter works with the issuer to establish the interest rate and the offering price in light of the issuer's financial needs and market conditions.

COVERDELL EDUCATION SAVINGS ACCOUNTS

not municipal securities They can be funded with traditional types of securities. These plans allow after-tax contributions of up to $2,000 per student per year for children until their 18th birthday.

Subordinated Debentures

paid last of all debt obligations, including general creditors, in the case of liquidation.

Public Appearance

participation in a seminar, webinar, forum, radio, TV interview

LIFE INSURANCE

provides a death benefit to a named beneficiary in the event of an insured's premature death.

Working Capital

the amount of capital or cash a company has available. current assets - current liabilities = working capital

Required Approval of Communication

•Institutional (No preapproval required) •Retail (Preapproval is required) •Correspondence (Pre or Post review required) •Public Appearance (Preapproval may be required but not mandated) •Research Reports (Preapproval dependent on what Type. Institutional or retail. Retail required preapproval •Website (Preapproval required) •Electronic Bulletin Board (Use must be approved by individual messages aren't) •Email and Instant Messaging (Approval requirements based on Retail, Correspondence or Institutional) •Generic Advertising (Preapproval is required)

Aggressiveness by Market Cap

■(less than $2 billion capitalization) and are called small-cap funds. ■Mid-cap funds are somewhat less aggressive and have in their portfolios shares of companies with a market capitalization of between $2 billion and $10 billion. ■Large-cap funds have market capitalization of greater than $10 billion. The lower the market cap, the greater the volatility.

Restricted Securities Affiliate Volume Limitations

■1% of the total outstanding shares of the same class at the time of sale, or ■the average weekly trading volume in the stock over the past four weeks on all exchanges or as reported through Nasdaq.

Types of Index Options

■Broad-based indexes ■Narrow-based indexes

AGENCY ISSUES

■Farm Credit Administration ■Government National Mortgage Association (GNMA or Ginnie Mae) Other agency-like organizations operated by private corporations include the following: ■Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) ■Federal National Mortgage Association (FNMA or Fannie Mae) ■Student Loan Marketing Association (SLMA or Sallie Mae)

MANAGEMENT COMPANIES

■Open-End Funds ■Closed-End Funds

Allocation Priorities

■Presale Order ■Group Net Order ■Designated Order ■Member Order and Member-Related Order

Types of Spreads

■Price or vertical spread ■Time or calendar spread ■Diagonal spread.

DISADVANTAGES OF REAL ESTATE INVESTMENT TRUSTS (REITs)

■The investor has no direct control over the portfolio and relies on professional management to make all purchase and sale decisions. While the expectation of having a professionally-managed portfolio should be considered advantageous, the quality of the portfolio lies with the quality of the professional management. ■Problematic loans within mortgage REIT portfolios can cause decreases in income flow and diminish capital returns. ■Dividends paid by the trusts do not meet the requirements of qualified dividends and therefore are taxable at full ordinary income tax rates to the investor.

HEDGE FUNDS

■highly-leveraged portfolios; ■the use of short positions; ■utilizing derivative products such as options and futures; ■currency speculation; ■commodity speculation; and ■investing in politically unstable international markets.

BASIC OPTIONS DEFINITIONS

■in-the-money, ■at-the-money, ■out-of-the-money, ■intrinsic value, and ■breakeven.

ANNUITIZATION OPTIONS

■life annuity (also known as straight life or life only); ■life annuity with period certain; ■joint life with last survivor annuity; and ■unit refund option. This is a separate contractual obligation that is entered into, and once annuitized, the decision is final.

Classes of CMOs

■principal only; ■interest only; ■planned amortization class; and ■targeted amortization class.

MULTIPLE OPTIONS TRANSACTIONS

■spreads ■straddles ■combinations

Backdating the letter

A fund often permits a customer to sign a LOI as late as the 90th day after an initial purchase. The LOI may be backdated by up to 90 days to include prior purchases but may not cover more than 13 months in total. A customer who signs the LOI 60 days after a purchase has 11 months to complete the letter.

Currency Risk (ADR)

ADR investors are subject to currency risk, the possibility that an investment denominated in one currency could decline if the value of that currency declines in its exchange rate with the U.S. dollar.

Registered Owner

ADRs are registered on the books of the U.S. banks responsible for them. The individual investors in the ADRs are not considered the stock's registered owners. ADRs are registered on the books of U.S. banks, so dividends are sent to the custodian banks as registered owners. The banks collect the payments and convert them into U.S. dollars.

Inflation Risk

Also call purchasing power risk. The effect on an money that is growing at a slower rate than the overall economy. Losing purchasing power as time goes on.

Capital Appreciation

An increase in the market price of shares ****Historically, common stock has provided investors with high returns****

LONG STOCK, LONG PUT (PROTECTIVE PUT)

An investor buys 100 shares of RST at 53 and buys an RST 50 put for 2. The maximum gain is unlimited. Should the stock price fall below the SP of 50, the investor will exercise the put to sell the stock for 50. The investor loses $3 per share on the stock and has spent $2 per share for the put. The total loss equals $500. The breakeven point is reached when the stock rises by the amount paid for the put; in this case, 53 + 2 = 55.

Calls

An investor may buy calls (go long) or sell calls (go short). The features of each side of a call contract are as follows. ■Long call: a call buyer owns the right to buy 100 shares of a specific stock at the SP before the expiration if he chooses to exercise. ■Short call: a call writer (seller) has the obligation to sell 100 shares of a specific stock at the SP if the buyer exercises the contract.

USING OPTIONS TO PROTECT A POSITION—HEDGING

An investor with an established stock position can use options to help protect against the risk of the position. The option helps insure the investor against some of the possible loss from the stock position.

BASIS

Basis is computed using the following formula: investment in partnership + share of recourse debt - cash distribution

Market Attitude

Bears & Bulls Bears expect market to go down Bulls expect market to go up

General Wealth of the Community (GO Bonds)

Because GOs are backed primarily by tax revenues, their safety is determined by the community's general wealth, which includes the following demographic data: ■Property values ■Retail sales per capita ■Local bank deposits and bank clearings ■Diversity of industry in its tax base ■Population growth or decline

VL PROSPECTUS DELIVERY

Because a VL insurance policy is considered a security as well as an insurance product, a prospectus is required, just as with any new issue. The prospectus must be delivered before or at the time of solicitation and may not be altered in any way (no highlighting or writing in the prospectus).

Withdrawal Plan Disclosures

Because withdrawal plans are not guaranteed, the registered representative must: ■stress to the investor that it is possible to exhaust the account by overwithdrawing; ■state that during a down market it is possible that the account will be exhausted if the investor withdraws even a small amount; and ■never use charts or tables unless the SEC specifically clears their use. ■never promise an investor a guaranteed rate of return;

Approval and Documentation of Changes in Account Name or Designation

Before any customer order is executed, there must be placed upon the order form or other similar record, the name or designation of the account (or accounts) for which such order is to be executed. No change in such account name(s) (including related accounts) or designation(s) may be made unless the change has been authorized by a registered principal.

Documentation of Customer Accounts

Before any trading can take place, an options account must be approved by the branch manager. Then, not later than 15 days after the account approval, the customer must return the signed options agreement. If the signed options agreement is not returned within 15 days of account approval, the investor cannot open new options positions. Only closing transactions are allowed if the options agreement is not returned as required.

Banker's Acceptance (BA)

Certain corporations in the import-export business will often use BAs as a short-term time draft with a specified payment date drawn on a bank—essentially a postdated check or line of credit. The payment date of a BA is normally between one and 270 days. ****Banker's Acceptance (BA) Think BA getting from point B to A, bank sits in middle, investors buy into and facilitate trade through bank****

FEE-BASED ACCOUNT

Charge a single fee (Fixed or Percentage of assets in account) instead of commission-based charges for brokerage services

Automatic Exercise

Contracts that are in-the-money by at least .01 at expiration are automatically exercised as a service to the customer unless other instructions have been given.

Benefits of cumulative vs statutory voting

Cumulative voting benefits the smaller investor, whereas statutory voting benefits larger shareholders.

Risk factors

Factors that are presently exposed to a security and increase one or more forms of risk

Disclosure of Fees

Fees to be paid to a clearing agency and the syndicate manager must be disclosed to syndicate members in advance. Normally, this disclosure is part of the syndicate letter or the agreement among underwriters.

FOOTNOTES

Footnotes are generally found on the bottom of the financial statements and can be several pages long. **If there's any pertinent info to the financials that needs to be said to anyone looking at it, it goes to the footnotes**

Market Attitude (Options Spreads)

For call spreads, the option contract with the lower strike price has the higher premium. Whether the spread is a debit or credit spread will depend on if the investor purchased the option with the lower SP or sold it. It is a debit if the investor purchased the one with the lower SP (higher premium). It is a credit if the investor sold the one with the lower SP (higher premium).

Position Limits

For the most heavily-traded equity options contracts, position limits are 250,000 contracts on the same side of the market. This limit is subject to frequent adjustment. No more than 250,000 contracts on the same side of the market may be exercised within a five-business-day period.

Consolidations

If a stock's price stays within a narrow range, it is said to be consolidating. Little to no price volatility

SURRENDER

If he wishes, the annuitant may simply cash in his annuity. In this case, his cost base is the total amount he has invested. He will be liable for income tax on the growth, plus a 10% penalty on the growth if he is under the age of 59½.

Deferring a Decision (Long Calls)

If you buy a call you have until the expiration date to decide if you even wanna buy the stock

Customer Profile: Non financial Investment Considerations

If you can't put a $ in front of it, it's considered non-financial info Martial status, number of dependents, employment status, age, risk tolerance All of these things may drastically change what you recommend for a client but aren't financial considerations

Locking in a Sale Price (Short Calls)

If you have a straight equity position that was purchased low and is now trading high, you're tryna sell it when it's worth the most. You accept premium for being short and the strike price is your opportunity to sell at a price you're happy w/, if the stock tanks, you still have your equities & since the premium isn't exercised, you gained the premium as income

Deferring a Decision (Long Puts)

If you wanna sell your shares but you aren't sure if you want to, owning a put option gives you the ability to keep today's price but wait a month

ROLLOVERS AND TRANSFERS

Individuals may move their investments from one IRA to another IRA or from a qualified plan to an IRA. These movements are known as rollovers or transfers. Assets may also be rolled over into an employer's retirement plan, provided the employer is willing to accept such deposits.

INTEREST RATE OPTIONS

Interest rate options are yield-based (i.e., they have a direct relationship to movements in interest rates). These options are based on yields of T-bills, T-notes, and T-bonds. A yield-based option with an SP of 35 reflects a yield of 3.5%.

Inverse (Reverse) Funds

Inverse funds, sometimes called reverse or short funds, attempt to deliver returns that are the opposite of the benchmark index they are tracking. For example, if the benchmark is down 2%, the fund's goal is to be up 2%. ****Shorting within a fund****

CLASS C SHARES (LEVEL LOAD)

Class C shares typically have a one-year 1% CDSC, a .75% 12b-1 fee (discussed shortly), and a .25% shareholder services fee. Because these fees are relatively high and never go away, C shares are commonly referred to as having a level load.

Closing Out (Options)

Closing sales or purchases generate a capital gain or loss equal to any price difference. This gain or loss must be reported on the basis of the date of the closing transaction.

Common Stock

Common stock can be classified as: ■authorized; ■issued; ■outstanding; and ■treasury.

Nonvoting Common Stock

Companies may issue both voting and nonvoting (or limited voting) common stock, normally differentiating the issues as Class A and Class B, respectively. Issuing nonvoting stock allows a company to raise additional capital while maintaining management control and continuity without diluting voting power.

Growth Industries

Companies whose industry as a whole is inflating. Tech stocks are an example of this, they grow and continue to fill the newly discovered market. Growth Stocks tend to pay little or no dividends as capturing corporate profits and reinvesting into the firm is very conducive to growth

Order Routing Systems

Computerized order routing systems are often used to route customer orders directly to the trading post and back to the firm. Notice of execution is sent directly to the BD.

Independently Prepared Reprint (IPR)

Consists of any article reprint that meets certain standards designed to ensure that the reprint was issued by an independent publishers and was not materially altered by the member.

Underwriting Spread

Consists of: •Managers Fee's- for negotiating the deal managing the underwriting and distribution process •Underwriting Fee - For assuming the risk of buying securities from the without assurance that they will be sold •Selling Concession - For transacting securities with investors

CORPORATE BONDS

Corporate bonds are issued to raise working capital or capital for expenditures such as plant construction and equipment purchases. The two primary types of corporate bonds are: secured unsecured.

CORPORATE RETIREMENT PLANS

Corporate retirement plans fall into two categories: ■defined benefit ■defined contribution.

Premiums (Forex Options)

Currency options are quoted in cents per unit. Just as with equity options, one point of premium = $100. The total premium of the contract is found by multiplying the premium by the number of units. If a Swiss franc contract (10,000 units) is quoted with a premium of 1.5, the cost of the contract is 10,000 × .015, or $150.

Expiration Date (Forex Options)

Currency options expire on the third Friday of the expiration month just as equity options do.

BONUS ANNUITIES

Direct financial benefits are sometimes offered with annuities, called bonus annuities. These benefits include enhancement of the buyer's premium, with the insurance company contributing an additional 3-5% to the premium payment.

Direct Payment BABs

Direct payment BABs provide no credit to the bondholder but instead provide the municipal issuer with payments from the U.S. Treasury equal to 35% of the interest paid by the issuer.

DIVERSIFIED AND NONDIVERSIFIED

Diversification provides risk management that makes mutual funds popular with many investors. However, not all investment companies feature diversified portfolios.

Reverse Stock Split

1<--2 1 For 2 You had 2 now your have 1 Your 2 were worth $2.50/each Your 1 now is worth $5.00 You still own $5.00 worth of company ****Companies do this shit when an exchange threaten to delist them due to low stock price****

Market Attitude (Calls)

A call buyer is a bullish investor because he wants the market to rise. The call is exercised only if the market price rises. A call writer is a bearish investor because she wants the market to fall. The contract is not exercised if the market price falls below the SP.

Partnership (Unincorporated Association)

A partnership is an unincorporated association of two or more individuals. Partnerships frequently open cash, margin, retirement, and other types of accounts necessary for business purposes. The partnership must complete a partnership agreement stating which of the partners can make transactions for the account. If the partnership opens a margin account, the partnership must disclose any investment limitations. ****As the Partnerships' agreement changes the broker must update annually****

LOI

A person who plans to invest more money with the same mutual fund company may immediately decrease her overall sales charges by signing a LOI. In the LOI, the investor informs the investment company that she intends to invest the additional funds necessary to reach the breakpoint within 13 months.

Market Attitude (Puts)

A put buyer is a bearish investor because he wants the market to fall. The put is exercised only if the market price falls below the SP. A put writer is a bullish investor because he wants the market to rise or remain unchanged. The contract is not exercised if the market price rises above the SP.

Characteristics of the Issuer

A quantitative analysis focuses on objective information regarding a municipality's population, property values, and per capita income. A qualitative analysis focuses on subjective factors that affect a municipality's securities.

Supervision and Compliance

A registered option principal (ROP) must be designated by a firm to handle compliance and supervisory issues regarding customer options business. An ROP is Series 4 licensed.

Secondary Market Joint or Trading Accounts

A secondary market joint or trading account is often formed by a group of investment bankers to purchase large blocks of bonds from institutions and resell them. As with underwritings, the size of the financial commitment requires more than one firm to handle such an undertaking.

INDIVIDUAL ACCOUNT

A single (individual) account has one beneficial owner. The account holder is the only person who may: ■control the investments within the account; and ■request distributions of cash or securities from the account.

Selling Concession and Additional Takedown

A syndicate member can buy bonds from the manager for $991.25, sell them to the public for $1,000, and earn the takedown of 7/8 point ($8.75). If the firm chooses instead to sell bonds to a member of the selling group, it does so at a price less than $1,000, in this case $995. The discount the selling group receives from the syndicate member is called the concession—1/2 point ($5).

Term Maturity

All principal matures at a single date in the future. Term bonds are quoted by price (like corporate bonds) and are called dollar bonds.

Conversions

Allows individuals to convert money from an IRA to a ROTH IRA.

Capital in Excess of Par

Also called additional paid in capital The amount received for stock in excess of par value of offering

Eastern Account

An Eastern account is an undivided account. Each underwriter is allocated a portion of the issue. After the issue has been substantially distributed, each underwriter is allocated additional bonds representing its proportionate share of any unsold bonds.

Even Stock splits

An even split ends in 1—such as a 2:1, 3:1, or 4:1 split. ****It's an even split if you can bust down the numbers to have a 1 on one side****

Long Straddles

An investor who uses a long straddle expects substantial volatility in the stock's price but is uncertain of the direction the price will move. To be ready for either occurrence, the investor purchases both a call and a put.

Cyclical Industries

Business cycle pretty much runs these firms, very sensitive ■steel; ■heavy equipment (such as tractors, airplanes, cranes); ■automobiles; and ■capital goods (such as washers and dryers). Here lies goods and services that people think about before purchasing. The new washing machine can wait until things improve, food can't.

Sources of Funds

GOs are backed by the issuing municipality's taxing power. Bonds issued by states are backed by income taxes, license fees, and sales taxes. Bonds issued by towns, cities, and counties are backed by property (ad valorem) taxes, license fees, fines, and all other sources of revenue to the municipality. School, road, and park districts may also issue municipal bonds backed by property taxes.

Bona Fide Quotes

If a municipal dealer gives, distributes, or publishes a quotation for a security, that quote must be bona fide. For a quote to be considered bona fide, or firm, the dealer must be prepared to trade the security at the price specified in the quote and under the conditions and restrictions (if any) accompanying the quote. A bona fide quote: ■must reflect the dealer's best judgment and have a reasonable relationship to the FMV for that security, and ■may reflect the firm's inventory and expectations of market direction.

Authorization Records for Negotiable Instruments Drawn From a Customer's Account

No member or person associated with a member may submit for payment a check, draft, or other form of negotiable paper drawn on a customer's checking, savings, or similar account, without that person's express written authorization, which may include the customer's signature on the negotiable instrument, such as a check. If written authorization is separate from the negotiable instrument, the member must preserve the authorization for a period of three years following termination of the document.

Strike Prices (Forex Options)

SPs of most foreign currency options are quoted in U.S. cents. The Japanese yen is an exception and is quoted in 1/100th of a cent.

Student Loan Marketing Association (Sallie Mae)

Sallie Mae was once an agency issue of the U.S. government but is now privately owned with its common stock (symbol SLM) trading on Nasdaq. It might still be improperly grouped with agency issues on a test question.

Shareholding Voting *Test Topic*

Shareholders do not vote on dividend-related matters, such as when they are declared and how much they will be. They do vote on stock splits, board members, and issuance of additional equity-related securities such as common stock, preferred stock, and convertible securities.

Trading

Purchases and sales of index options, like equity options, settle on the next business day. Index options stop trading at 4:15 pm ET if they are broad-based. Narrow-based index options stop trading at 4:00 pm ET.

BUYING PUTS (Long Puts)

Put buyers are bearish on the underlying stock.

WRITING PUTS (Short Puts)

Put writers are bullish or neutral on the price of the underlying stock.

OPENING ACCOUNTS FOR OTHER MEMBERS' EMPLOYEES

Regulatory bodies have rules and special procedures regarding the establishment of accounts for certain individuals, including: ■employees of BDs; and ■spouses or minor children of BD employees. The FINRA rule requires that a person associated with a member, before opening an account or placing an initial securities order with another member, notify the employer and the executing member (where the new account is to be maintained), in writing, of her association with the other member.

Diversified *Test Topic*

Remember, for testing purposes, the 5% and 10% limitations are part of the 75% invested. There are no conditions attached to the remaining 25%. If a security represents 5% or less of the fund's total assets at the time of purchase and thereafter exceeds 5% due to capital appreciation, no action is required in order to maintain a diversified status.

Interest Rate Comparisons

In addition to issuer-specific information, the value of any bond is affected by trends in the overall bond market. Municipal bond prices tend to fluctuate more than government and corporate bond prices because each issue is unique and may have few regular market makers.

Taxes on ADRs

In most countries, a withholding tax on dividends is taken at the source. In the case of investors holding ADRs, this would be a foreign income tax. The foreign income tax may be taken as a credit against any U.S. income taxes owed by the investor.

Income (Common Stock)

Income derived from Common stock is dividends

Limited partnerships

Investors (limited partners) in DPPs enjoy several advantages: ■ An investment managed by others ■Limited liability ■Flow-through of income and certain expenses

Allowable Activity During Cooling-Off Period

MAY: •Distribute Red Herrings •Publish Tombstone Ads •Gather Indications of Interest MAY NOT: •Offer securities for sale •Distribute final prospectuses •Broadcast advertising material •Broadcast sales literature •Take orders •Accept post dated checks

Stock Splits

Maintaining market cap but altering # of shares up or down

Speculation (Long Puts)

Market might go down, might not. idk, i'll just buy this option because it's cheap & i'm not exposed more than the premium ****Investors can speculate on the downward price movement of the stock that is not owned by paying only the premium.****

Unlimited Marital Deduction

Married couples are allowed to transfer their entire estate to the surviving spouse at death. This unlimited marital deduction results in taxes being owed at the death of the survivor.

Hypothetic Illustrations - Variable Contracts

May not be used to project or predict investment results May use any combo of assumed investment returns up to 12% provided that there's a return of 0% Must reflect maximum mortality and expense charges associated

Timing Risk

Risk of timing an investment/ trade wrong. Selling too low, buying too high. Buying into a stock and selling before the company booms.

INDEX TRACKING FUNDS

Some funds are designed to track the performance of an underlying investment portfolio or index. While they are not investment company products, they do have characteristics similar to both open-end and closed-end funds. Like closed-end funds, index fund shares trade and are priced like shares of stock. Like open-end funds, they can create (issue) additional shares

Variable-Rate Municipals (Variable-Rate Demand Obligations, VRDOs)

Some municipal bonds and notes are issued with variable, or floating, rates of interest. A variable-rate municipal bond offers interest payments tied to the movements of another specified interest rate, much like an adjustable-rate mortgage.

Broker's Broker

Some municipal brokers specialize in trading only with institutional customers, such as banks and other municipal brokers, not with the retail public. These firms are called broker's brokers because their business focuses on helping other municipal dealers place unsold portions of new bond issues. They do not disclose the identity of the customers they represent. Furthermore, they act solely as agents and do not maintain an inventory of bonds.

Special Assessment Bonds (or Special District Bonds)

Special assessment bonds are issued to finance the construction of public improvements such as streets, sidewalks, or sewers. The issuer assesses a tax only on the property that benefits from the improvement and uses the funds to pay principal and interest.

Speculation (Long Calls)

Speculation is the most common reason for buying calls. Investors can speculate on the upward price movement of the stock by paying only the premium. Buying the actual stock would require a far greater investment.

Capitalization

Sum of Long-term debt and equity securities

Order Period

The MSRB has established a timeline for municipal underwritings. The order period is the time set by the manager during which the syndicate solicits customers for the issue and all orders are allocated without regard to the sequence in which they were received.

Estate Tax Exclusion

The estate of a deceased person is allowed to exclude some of that person's estate from taxation. The amount of the exclusion is subject to change depending on current tax law.

Exercise

The exercise of an index option settles in cash rather than in delivery of a security, and the cash must be delivered on the next business day. If the option is exercised, the writer of the option delivers cash equal to the intrinsic value of the option to the buyer.

Retained Earnings

The positive discrepancy between what a company made and spent

Establishing the Bid

The syndicate arrives at its competitive bid over a series of meetings during which member dealers discuss the proposed reoffering scale and spread for the underwriters. Their goal is to arrive at the best price to the issuer while still making a profit. At a preliminary meeting, the manager seeks tentative agreement from members on the prices or yields of all maturities in the issue as well as the gross profit or underwriting spread.

Expiration (LEAPS)

The tax treatment for LEAPS writers at expiration is unique. Although investors may have held the contract for more than 12 months, LEAPS writers must report short-term capital gains at expiration. LEAPS buyers will report long-term losses and gains if the contact is held for more than 12 months.

FUND SHARE LIQUIDATIONS TO THE INVESTOR

When an investor sells mutual fund shares, he must establish his cost base, or basis, in the shares to calculate the tax liability.

Variable Annuity *Test Topic*

Whenever you see the term variable, as in variable annuity or variable life (discussed later), two licenses are required for the sale—an insurance license and a securities license. Suitability must be determined and a prospectus must be delivered prior to or with solicitation of the sale.

Moral Obligation Bonds

a state- or local-issued, or state- or local agency-issued, bond. If revenues or tax collections backing the bond are not sufficient to pay the debt service, the state legislature has the authority to appropriate funds to make payments. ****The potential backing by state revenues tends to make the bond more marketable, but the state's obligation is not established by law; it is a moral obligation only.****

Options Contract

a two-party contract that conveys a right to the buyer and an obligation to the seller.

Prepaid tuition plans

allow donors to lock in future tuition rates at today's prices, thus offering inflation protection.

College Savings Plan

allows the donor to invest a lump sum or make periodic payments. The money is typically invested into target-date funds. As the target date approaches (the date the money is needed) the portfolio gets more conservative. ****Shit functions just like the employer sponsored investment plan w/ target date****

Revenue Bonds

can be used to finance any municipal facility that generates sufficient income. Revenue bonds are not subject to statutory debt limits and do not require voter approval.

Convertible Bonds

corporate bonds that may be exchanged for a fixed number of shares of the issuing company's common stock.

INVESTMENT COMPANIES

corporation or trust that pools investors' money and then invests that money in securities on their behalf.

Current Ratio

current assets and current liabilities—but expresses them as a ratio of one to the other. Simply divide the current assets by the current liabilities, and the higher the ratio, the more liquid the company is. Measure of a firms' liquidity. Current Ratio - Use Both "Current" values

Dividend Payout Ratio

dividend payout ratio=annual dividends per common share/ earnings per share (EPS)

Zero-Coupon Bonds

do not make regular interest payments. Instead, zeroes are issued, or sold, at a deep discount to their face value and mature at par. The difference between the discounted purchase price and the full face value at maturity is the return, or accreted interest, the investor receives.

Research Reports

documents prepared by analysts or strategists, typically as part of a research team for an investment bank or broker-dealer.

Cost Basis of Shares Inherited/Gifted

either stepped up or stepped down to its FMV at the date of the decedent's death. ****Inherited shares = NAV @ Death****

Equipment Trust Certificates

equipment notes and bonds, to finance the purchase of capital equipment.

Established Customers

exempt from the suitability statement requirement but not from the disclosure requirements. An established customer is someone who: ■has held an account with the BD for at least one year (and has made a deposit of funds or securities); or ■has made at least three penny stock purchases of different issuers on different days.

Tax Anticipation Notes (TANs)

finance current operations in anticipation of future tax receipts. This helps municipalities to even out cash flow between tax collection periods.

Class A Shares

front-end load are called Class A shares.

NONEQUITY OPTIONS

function nearly the same as equity options. However, because the underlying instruments are not shares of stock, nonequity options have different contract sizes and delivery and exercise standards.

SPECIALIZED (SECTOR) FUNDS

funds attempt to specialize in particular economic sectors or geographic areas. These funds must have a minimum of 25% of their assets invested in their specialties. ****Sector funds offer high appreciation potential, but may also pose higher risks to the investor as a result of the concentration of investments.**** <-- NOT VERY DIVERSIFIED

Stock Options (Purchase Plans not Derivatives)

give an employee the right to purchase a specified number of shares of the employer's common stock at a stated price over a stated time period. Rights offering to employees. Strike price is below market price allowing for quick capital gains The employee must be with the firm for a period of time before this becomes available. So called the "Vesting-Period"

Ginnie Mae

government-owned corporation that supports the Department of Housing and Urban Development. ****Ginnie Maes are the only agency securities backed by the full faith and credit of the federal government.****

Issued Stock

has been authorized and distributed to investors

Corporate Bond Funds

in general, have higher credit risk than various government issues but can still be classified as investment-grade (safer) or non-investment-grade (riskier) portfolios.

Time or calendar spread

includes option contracts with different expiration dates but the same SPs.

Revenues

indicate the firm's total sales during the period (the money that came in)

Reversals

indicates that an upward or a downward trendline has halted, and the stock's price is moving in the opposite direction.

advance/decline line

indication of market breadth trends

OPTION INCOME FUNDS

invest in securities on which call options can be sold (known as covered calls). They earn premium income from writing (selling) the options. ****Owning a fund that invests in options. Short Covered Calls, Long Puts. Investor gets proceeds****

INDEX FUNDS

invest in securities that mirror a market index, such as the S&P 500. An index fund buys and sells securities in a manner that mirrors the composition of the selected index.

GROWTH/VALUE FUNDS

invest in stocks of companies whose businesses are growing rapidly. Growth companies tend to reinvest all or most of their profits for research and development rather than pay dividends.

WITHDRAWAL PLANS

mutual funds offer systematic withdrawal plans. Withdrawal plans are normally a free service. Not all mutual funds offer withdrawal plans, but those that do may offer the plan alternatives described here.

U.S. Government Funds

purchase securities issued by the U.S. Treasury or an agency of the U.S. government, such as Ginnie Mae. Investors in these funds seek current income and maximum safety.

Debit Put Spread

reduce the cost of a long put position. The investor who establishes a debit put spread is bearish.

ASSET ALLOCATION FUNDS

split investments between stocks for growth, bonds for income, and money market instruments or cash for stability. Fund advisers switch the percentage of holdings in each asset category according to the performance (or expected performance) of that group. ****A fund may have 60% of its investments in stock, 20% in bonds, and the remaining 20% in cash. If the stock market is expected to do well, the adviser may switch from cash and bonds to stock. The result may be a portfolio of 80% in stock, 10% in bonds, and 10% in cash.****

Treasury Stock

stock a corporation has issued and subsequently repurchased from the public. The corporation can hold this stock indefinitely or can reissue or retire it.

BLEND/CORE FUNDS

stock funds with a portfolio comprising a number of different classes of stock. Such a fund might include both blue-chip stocks and high-risk/high-potential-return growth stocks.

Outstanding stock

stock that is investor owned

SHAREHOLDER EQUITY

stockholder claims on a company's assets after all its creditors have been paid. Shareholder equity equals total assets less total liabilities. ■Capital Stock @ Par ■Capital in excess of Par ■Retained Earnings

Capital Structure

the relative amounts of debt and equity that compose a company's capitalization.

Fundamental analysis

the study of the business prospects of an individual company within the context of its industry and the overall economy. Looking at Book Fundamentals to evaluate strength of a firm

PRICE OF MUTUAL FUND SHARES

total assets − liabilities = net assets of the fund

Investing activities

transactions and events involving the purchase and sale of securities, land, buildings, equipment, and other assets not generally held for resale as a product of the business.

Red Herring (Preliminary Prospectus)

used to gain indications of interest on an issue recently filed registration with SEC.

Separate Trading of Registered Interest and Principal of Securities (STRIPS)

zero-coupon bond market by designating certain Treasury issues as suitable for stripping into interest and principal components.

Tombstone Ads Include

•Name of issuer •Type of Security •Underwriter •Price •Effective date

Other Features to Analyze

■Management ability and experience of the GP in running other similar programs ■Blind pool or nonspecific program—in a blind pool, less than 75% of the assets are specified as to use; however, in a specified program, more than 75% have been identified ■Time frame of the partnership ■Similarity of start-up costs and revenue projections to those of comparable ventures ■Lack of liquidity of the interest

Two types of defined contribution plans.

■Money purchase plans ■Profit-sharing plans

Index Option Features

■Multiplier ■Trading ■Exercise ■Settlement Price ■Expiration Dates ■Index Option Exercise

PAYMENT AND DELIVERY INSTRUCTIONS

■Transfer and Ship ■Transfer and Hold in Safekeeping ■Hold in Street Name ■Delivery vs. Payment (DVP)

1035 EXCHANGE *Test Topic*

FINRA is concerned about Section 1035 exchange abuses where the registered representative emphasizes the tax-free nature of the exchange without pointing out possible disadvantages. Those include: ■possible surrender charges on the old policy; ■a new surrender charge period on the new policy; and ■possible loss of a higher death benefit that existed on the old policy.

Book Value Per Share

(Tangible assets-liabilities-par value of preferred)/ shares of common stock outstanding

Saucer

(reversal of a downtrend)

Inverted Saucer

(reversal of an uptrend)

Liquidation Order

1)Payroll 2)Taxes 3)Secured Bonds 4)Debentures and General Creditors 5)Preferred 6)Common

Uneven Split

3:2 or 5:4 does not create additional options contracts. Contracts adjusted for uneven splits include a larger number of shares and will receive a new option contract symbol.

FINANCIAL LEVERAGE

A firms' ability to use long-term debt to increase it's return on equity. Legally out-kicking their coverage

Advisory Account

Account opened though a Registered Investment Adviser (RIA). Provides investment advice for a fee

Transfer on Death (TOD)

Account provision that allows the registered owner of a the account to pass a portion or all of their investments to the beneficiaries. This avoids the process of going through a probate in a court to determine proceeds.

TAXATION OF ANNUITIES

All contributions to annuities are made with after-tax dollars, unless the annuity is part of an employer-sponsored (qualified) retirement plan or held in an IRA.

Sponsored ADRs

All exchange-listed ADRs are sponsored—that is, the foreign company sponsors the issue to increase its ownership base.

Tactical Asset Allocation

Asset reallocation that is used to quickly reorganize a portfolio to response to current market conditions If stock market is ab to bewm for a week, a portfolio manager may briefly balance a portfolio to lean toward equities.

Phases of Annuities

Accumulation Phase -----------> Annuity Phase Accumulation Units -----------> Annuity Units

Increasing Returns (Short Calls)

Additional income can be earned for a portfolio by writing calls. Investors hope for expiration of the calls so they can keep the premiums.

Increasing Returns (Short Puts)

Additional income can be earned for a portfolio by writing puts. Investors hope for expiration of the puts so that they can keep the premium.

Awarding the Issue

After the issuing municipality meets with the municipality's attorneys and accountants to analyze each bid, it awards the municipal bond issue to the syndicate that offers to underwrite the bonds at the lowest net interest cost or true interest cost to the issuer. Net interest cost (NIC) is a common calculation used for comparing bids and awarding the bond issue. It combines the amount of proceeds the issuer receives with the total coupon interest it pays. True interest cost (TIC) provides the same type of cost comparison adjusted for the time value of money. In split-rate bids (bids with more than one interest rate), interest is determined by the lowest average interest cost to the issuer. If each bid calls for one rate for the whole issue, the award goes to the syndicate with the lowest rate.

Organizations Classified as Partnerships

An organization is classified as a partnership for federal tax purposes if it has two or more members and is none of the following: ■An organization formed under a federal or state law that refers to itself as incorporated or as a corporation, body corporate, or body politic ■An organization formed under a state law that refers to itself as a joint-stock company or joint-stock association ■An insurance company ■Certain banks ■An organization wholly owned by a state or local government ■An organization specifically required to be taxed as a corporation by the IRC (e.g., certain publicly-traded partnerships) ■Certain foreign organizations ■A tax-exempt organization ■A real estate investment trust ■An organization classified as a trust or otherwise subject to special treatment under the IRC ■Any other organization that elects to be classified as a corporation by filing Form 8832

Maximum Gain (Short Calls)

An uncovered call (or naked call) writer's maximum gain is the premium received.

Assets

Assets appear on the balance sheet in order of liquidity, which is the ease with which they can be turned into cash. Most Liquid First Least Liquid Last

PREEMPTIVE RIGHTS

Antidilution provision If a corporation wants to issue additional shares of common stock, existing shareholders get the right to purchase enough newly issued shares to maintain proportional ownership

Profit Motive

Any DPP established without a profit motive or with the intention of only generating tax losses for investors may be determined abusive. Investors in abusive DPPs may be subject to: ■back taxes; ■recapture of tax credits; ■interest penalties; or ■prosecution for fraud.

Accumulation Units *Test Topic*

As mentioned earlier in our comparison chart with mutual funds, accumulation unit values are computed daily on a forward pricing basis. As you will soon see, annuity unit values are computed monthly based on actual performance versus the assumed interest rate.

Nondiversified

As stated in the Investment Company Act of 1940, ''Non-diversified company means any management company other than a diversified company". Wow no kidding huh

Two Parties Are Involved in an Options Contract

Buyer = Long = Holder = Owner Seller = Short = Writer

Speculation (Short Calls)

By writing calls, an investor can profit if the stock's price falls below or stays at the SP. The investor can earn the amount of the premium.

Speculation (Short Puts)

By writing puts, an investor can profit if the stock's price rises above or stays at the SP. The investor can earn the amount of the premium.

BUYING CALLS (Long Calls)

Call buyers are bullish on the underlying stock.

American- or European-Style Contracts

Call or put buyers can exercise a contract anytime before expiration if the contract is an American-style option. ****European-style options can be exercised on expiration day (last day of trading) only.****

WRITING CALLS

Call writers are bearish or neutral on the price of the underlying stock.

Capital Stock at Par

Capital stock includes common & preferred Par value is arbitrary and assigned to each stock Face value of all paid shares together

REINVESTMENT OF DISTRIBUTIONS

Dividends and capital gains are distributed in cash. However, a shareholder may elect to reinvest distributions in additional mutual fund shares.

Head and Shoulders Top

Downward Biased Reversal. Called Head and shoulders because plateaus on either side leading to head

CONTRACT EXCHANGE

During the early stage of ownership, a policyowner has the right to exchange a VL contract for a traditional fixed-benefit WL contract. The length of time this exchange privilege is in effect varies from company to company, but under no circumstances may the period be less than 24 months (federal law).

Earnings Per Share (EPS)

EPS =earnings available to common/ number of shares outstanding Earnings available to common are earnings minus preferred dividends

Partnership Agreement

Each partner receives a copy of this agreement. It describes the roles of the general and limited partners and guidelines for the partnership's operation.

CAPITAL GROWTH (CAPITAL APPRECIATION)

Equity oriented investments looking to grow a lump sum through capital gains.

Diagonal Spread

Example of a diagonal spread: ■Long RST Jan 55 call for 6 ■Short RST Nov 60 call for 3

Price spread or Vertical spread

Example of a price or vertical spread: ■Long RST Nov 50 call for 7 ■Short RST Nov 60 call for 3

HOW THE OPTIONS MARKET FUNCTIONS

Exchange-traded options are known as listed options and have standardized exercise prices and expiration dates. OTC options are not standardized. As a result, little secondary market activity exists because contract terms are individually negotiated between buyer and seller; no two contracts are the same.

Outstanding Stock *Test Topic*

Expect to see a question on outstanding stock similar to the following. ABC company has authorized 1 million shares of common stock. It issued 800,000 shares one year ago. It then purchased 200,000 shares for its treasury. How many shares of ABC stock are outstanding? The solution requires that you know a basic formula: issued stock - treasury stock = outstanding stock In applying this formula to our sample question, the solution is as follows: 800,000 - 200,000 = 600,000 Alternatively, treasury stock equals issued shares minus outstanding shares.

Customer Income Statement

Find out about the client's income set up and what their need for funds is.

ACCUMULATION PHASE

Growth phase of a Variable annuity where it has been funded and is accumulating but not paying out

Guaranteed Bonds

Guaranteed bonds are backed by a company other than the issuer, such as a parent company. This backing effectively increases the issue's safety.

PENNY STOCKS

Highly speculative OTC shares priced below $5/share Cold calling for penny stocks is highly regulated The provisions of the penny stock rules apply only to solicited transactions. Transactions not recommended by the BD are exempt. ****Regardless of activity, if the account holds penny stocks, BDs must provide a monthly statement of account to the customer. This must indicate the market value and number of shares for each penny stock held in the account, as well as the issuer's name.****

Measuring Economic Viability

How is economic viability measured? Two methods applied to the analysis of DPPs are cash flow analysis and internal rate of return. ■Cash flow analysis compares income (revenues) to expenses. ■Internal rate of return determines the present value of estimated future revenues and sales proceeds to allow comparison to other programs.

Straddles Chart

Like spreads, straddles can also be identified easily with the master options chart. Straddles are identified by vertical ovals rather than horizontal ovals on the chart.

VL Loans

Like traditional whole life (WL), a VL contract allows the insured to borrow against the cash value that has accumulated in the contract. Loans are not considered constructive receipt of income and therefore are received income tax-free.

Trading (Forex Options)

Listed currency options are primarily traded on the Nasdaq OMX PHLX (formerly the Philadelphia Stock Exchange). Trading hours are 9:30 am-4:00 pm ET.

Settlement

Listed options transactions settle on the next business day. Stock delivered as a result of exercise is settled on a regular way basis (two business days).

Expiration

Listed stock options expire on the third Friday of the month at 11:59 pm. Final trades may be made until 4:00 pm on the final day of trading (expiration).

Trading Times (Options)

Listed stock options trade from 9:30 am-4:00 pm ET (3:00 pm CT). Note that broad-based index options trade until 4:15 pm ET (3:15 pm CT).

New Housing Authority Bonds

Local housing authorities issue New Housing Authority bonds (NHAs) to develop and improve low-income housing. NHAs are backed by the full faith and credit of the U.S. government. NHAs are sometimes called Public Housing Authority bonds (PHAs).

PRESERVATION OF CAPITAL

Most conservative investment options when your client says they don't want to lose a dime ■Money market securities ■Money market mutual funds ■Certificates of deposit (CDs) ■Government securities Principal-protected funds may also be appropriate if they are looking to invest for a longer time horizon

Option Round Lots

Options are sold in round lots of 100

Conversion Parity

Parity means that two securities are of equal dollar value (in this case, a convertible bond and the common stock into which it can be converted). $1,000 Bond turns into $1,000 Stock

Asset Allocation

Part of Diversification Some portfolio managers place asset allocation as the biggest factor of economic success ahead of stock picking and market timing.

Customer Balance Sheet

Part of KYC, stupid easy concept (assets - liabilities = net worth) Find out what they owe and what they own. The sum of that is the size of your client. Pretty GBUS101 concept

PURCHASING ANNUITIES

Payments to the insurance company can be made either with a single lump-sum payment or periodically on a monthly, quarterly, or annual basis. periodic payment deferred annuity allows investments over time. Benefit payments for this type of annuity are always deferred until a later date selected by the annuitant. An immediate annuity is purchased with a lump sum, and the payout of benefits usually commences within 60 days.

Payroll Deduction Plan

Payroll deduction plans allow employees to authorize their employer to deduct a specified amount for retirement savings from their paychecks. The money is deducted after taxes are paid and may be invested in any number of retirement vehicles at the employee's option.

Rating services

Standard and Poor's (S&P) and Moody's Investors Service, Inc., evaluate the credit quality of bond issues and publish their ratings. S&P and Moody's rate both corporate and municipal bonds.

Local Government Investment Pools (LGIPs)

States establish LGIPs to provide other government entities, such as cities, counties, school districts, or other state agencies, with a short-term investment vehicle to invest funds. The LGIPs are generally formed as a trust in which municipalities can purchase shares or units in the LGIP's investment portfolio.

INDIVIDUAL PLANS

The U.S. government encourages individuals to save for retirement by providing tax benefits to those that contribute to individual retirement accounts (IRAs).

Western Account

The Western account is a divided account. Each underwriter is responsible only for its own underwriting allocation.

PRINCIPAL-PROTECTED FUNDS

The basic guarantee is that the investor's return will never be less than the original investment, less any sales load. ■Guarantee principal. Most principal-protected funds guarantee the initial investment minus any front-end sales charge even if the stock markets fall. In many cases, the guarantee is backed by an insurance policy. ■Lock-up period. If you sell any shares in the fund before the end of the "guarantee period"—a period of anywhere from five to 10 years—you lose the guarantee on those shares and could lose money if the share price has fallen since your initial investment. ■Hold a mixture of bonds and stocks.

Freddie Mac

a public corporation. It was created to promote the development of a nationwide secondary market in mortgages by buying residential mortgages from financial institutions and packaging them into MBS for sale to investors.

Valuing Fund Shares

The cost base of mutual fund shares includes the shares' total cost, including sales charges plus any reinvested dividend and capital gains distributions.

Sharing Arrangements

The costs and revenues associated with oil and gas programs are shared in a variety of ways. A description of these arrangements follows.

Defined contribution plans

The current contribution amount is specified by the plan's trust agreement and individual employee accounts are created; however, the benefit that will be paid at retirement is unknown. These plans favor younger employees because they have more time for the money to grow.

AIR AND VARIABLE DEATH BENEFIT

The death benefit payable under a VL insurance policy is adjusted on an annual basis and can increase or decrease based on the performance of the separate account compared with an AIR. ****The variable death benefit is adjusted annually. If there have been several months of negative performance, they must be offset by equivalent positive performance before the variable death benefit can be adjusted upward.****

The Debt Statement

The debt statement is used in the analysis of GO debt. It includes the estimated full valuation of taxable property, the estimated assessed value of property, and the assessment percentage.

CUSTOMER INVESTMENT OBJECTIVES

This is an important piece to ask clients to make sure that the broker & client are on same page. If the terms of a deal are all good and business is signed, the broker must make sure that the objectives that the client is seeking gets met.

Holding a Quote

This is called an out-firm with recall quote. Generally, these quotes are firm for an hour (or half hour) with a five-minute recall period.

SPECULATION

This is for customers trying to go big or bust. Speculators try to catch special situations and are willing to accept higher than normal risk for the chance at higher than normal gains. ■option contracts; ■high-yield bonds; ■unlisted or non-Nasdaq stocks or bonds; ■sector funds; ■precious metals; and ■special situation funds.

LIFE ANNUITY WITH PERIOD CERTAIN

To guarantee that a minimum number of payments are made even if the annuitant dies, the life with period certain option can be chosen. The contract will specifically allow the choice of a period of 10 or 20 years, for instance. ****This guarantees that either the annuitant or their beneficiaries are certain to receive a minimum number of payments**** If this nig gets a life annuity w/ period certain of 10 years and this nig croaks 2 years deep, his bene's get 8 more payments. If this nig lives to 280 years old, he will continue to receive payments as long as he is alive

Debt Limits

To protect taxpayers from excessive taxes, statutory debt limits may be placed on the overall amount of debt a municipality can have. Suppose a city's total debt is limited to 5% of the estimated market value of all taxable property within the city's boundary. The total value of those properties multiplied by 5% would be city's statutory debt limit. A bond's OS discloses how close total outstanding debt, including newly issued debt, comes to its statutory debt limit.

THE CONDUIT THEORY

Triple taxation of investment income may be avoided if the mutual fund qualifies under Subchapter M of the Internal Revenue Code (IRC). If a mutual fund acts as a conduit (pipeline) for the distribution of net investment income, the fund may qualify as a regulated investment company (RIC), subject to tax only on the amount of investment income the fund retains. The investment income distributed to shareholders escapes taxation at the mutual fund level.

FIFO

When FIFO shares are sold, the cost of the shares held the longest is used to calculate the gain or loss. In a rising market, this method normally creates adverse tax consequences.

Fixed-Percentage or Fixed-Share

Under a fixed-percentage or fixed-share withdrawal plan, either a fixed number of shares or a fixed-percentage of the account is liquidated each period.

Fixed-Time

Under a fixed-time withdrawal plan, customers liquidate their holdings over a fixed period. Most mutual funds require a customer's account to be worth a minimum amount of money before a withdrawal plan may begin. Regardless of the option chosen, it is rare for a fund to permit continued investment once withdrawals start.

Lease-Rental Bonds

Under a typical lease-rental (or lease-back) bond arrangement, a municipality issues bonds to finance office construction for itself or its state or community.

Customer Identification Program (CIP)

Under provisions of the USA PATRIOT Act, BDs are required to institute a customer identification program (CIP) designed to: ■verify the identity of any new customer; ■for an individual, an unexpired government-issued identification such as a drivers license, passport, military ID, or state ID; ■for a person other than an individual, documents showing the existence of the entity, such as certified articles of incorporation, a government-issued business license, a partnership agreement, or trust instrument;

Index Annuity

Unlike a traditional fixed annuity, an index annuity credits interest to the owner's account, using a formula based on the performance of a particular stock index, such as the S&P 500. If the index does well, the annuitant is credited with a specified percentage of the growth of the index—typically 80% or 90% of the growth.

Real-Time Transaction Reporting System (RTRS)

Up-to-the-minute pricing information regarding eligible municipal bond transactions is made available through an approved portal such as the National Securities Clearing Corporation (NSCC). The data is captured and made available to the marketplace within 15 minutes of a trade by the MSRB's RTRS.

Head and Shoulders Bottom

Upward Biased Reversal. Called Head and shoulders because plateaus on either side leading to head

Types of Syndicate Accounts

Western Account Eastern Account

OPTIONS CLEARING CORPORATION (OCC)

While the basic functions of the Options Clearing Corporation (OCC) are covered in the SIE exam, following is a more in-depth discussion applicable to Series 7 licensing testing.

Maximum Loss (Short Puts)

Worst case scenario is you're forced to buy stock that's literally valueless (SP-Premium)100

Credit Risk

You buy a bond and the company who issued it gets downgraded by credit agencies. Now your bond is worth crap. This example isn't terrible Worse would be if the company defaults on you and you never get paid your face amount back

UNIT REFUND OPTION

a minimum number of payments are made upon retirement.

Debentures

backed by the general credit of the issuing corporation, and a debenture owner is considered a general creditor of the company. Debentures are below secured bonds and above subordinated debentures and preferred and common stock in the priority of claims on corporate assets.

SPECIAL SITUATION FUNDS

buy securities of companies that may benefit from a change within the companies or in the economy. Takeover candidates and turnaround situations are common investments. These funds are also speculative (high risk).

GROWTH AND INCOME FUNDS

attempt to combine the objectives of growth and current income by diversifying its stock portfolio among companies showing long-term growth potential and companies paying high dividends. Often, both value and growth management styles are utilized. ****An investor seeking dividends and capital appreciation with moderate risk may be interested in a growth and income fund.****

Technical analysis

attempts to predict the direction of prices on the basis of historic price and trading volume patterns when laid out graphically on charts. **Bros**

Tax-sheltered annuities (TSAs)

available to employees of: ■public educational institutions; ■tax-exempt organizations (501(c)(3) organizations); and ■religious organizations.

Cumulative Preferred

any dividends in arrears must be paid before paying a common dividend. ****Cumulative preferred typically has a lower stated dividend than straight preferred (less risk equals less reward).****

Ranking Entity

any entity that provides general information about investment companies to the public. Must be external to the firm who report is on. Company can't use own rating to promote in advertising.

Tax and revenue anticipation notes (TRANs)

are a combination of the characteristics of both TANs and RANs.

EQUIPMENT LEASING PROGRAMS

are created when DPPs purchase equipment leased to other businesses. Investors receive income from lease payments and also a proportional share of write-offs from operating expenses, interest expense, and depreciation.

Construction loan notes (CLNs)

are issued to provide interim financing for the construction of housing projects.

Grant anticipation notes (GANs)

are issued with the expectation of receiving grant money from the federal government.

Warrant

certificate granting its owner the right to purchase securities from the issuer at a specified price (normally higher than the current market price) as of the date of issue of the warrant.

Subscription Right Certificate

certificate representing a short-term (typically 30 to 45 days) privilege to buy additional shares of a corporation. One right is issued for each common stock share outstanding.

VALUE FUNDS

companies whose stocks are currently undervalued (earnings potential is not reflected in the stock price). ****Strictly underweight funds**** Stocks included because they are good buys

Combinations

composed of a call and a put with different SPs, expiration months, or both. Combinations are similar to straddles in strategy. ****Investors typically use combinations because they are cheaper to establish than long straddles if both options are out-of-the-money.****

STRADDLES

composed of a call and a put with the same SP and expiration month. Straddles can be long or short and are used by investors to speculate on the price movement of stock.

Fundamental analysts

concentrate on broad-based economic trends; current business conditions within an industry; and the quality of a particular corporation's business, finances, and management. **Nerds**

FORMING LIMITED PARTNERSHIPS

may be sold through private placements or public offerings. If sold privately, investors receive a private placement memorandum for disclosure.

Gift Tax Exemption

may give gifts up to a maximum amount per year to any number of individuals without incurring gift tax.

Economic viability

means that there is potential for returns from cash distributions and capital gains.

Know Your Customer (KYC)

places an obligation on the firm and associated person to seek information from customers. ****Prevents brokers from freely selling to total randos. If you know your customer you're less likely to fucc everything up****

Broad-based indexes

reflect movement of the entire market and include the S&P 100 (OEX), S&P 500, and the Major Market Index (MMI).

Put-Call Ratio

reflects the current open interest in the trading of put options to call options. ****The ratio can be used as a gauge of investor sentiment (bullish or bearish) and can be calculated to measure broad sectors of the market across many underlying securities or indexes, or it can be used to gauge investor sentiment for just one underlying security.****

Statement of Cash Flow

reports a business's sources and uses of cash and the beginning and ending values for cash and cash equivalents each year.

Negotiable CDs (Jumbo CDs)

represent unsecured time deposits that banks offer (issue) ****Unsecured CD's traded on secondary market****

Double-Barreled Bonds

revenue bonds that have characteristics of GOs. Interest and principal are paid from a specified facility's earnings. However, the bonds are also backed by the taxing power of the state or municipality and therefore have the backing of two sources of revenue. ****Although they are backed primarily by revenues from the facility, double-barreled bonds are rated and traded as GOs.****

Municipal bonds

securities issued either by state or local government or by U.S. territories, authorities, and special districts.

Financing Activities

the flow of cash to or from the business owners (equity financing) and creditors (debt financing).

Pricing for T-Notes

T-notes are issued, quoted, and traded as a percentage of par in 1/32%

Cumulative voting.

Cumulative voting allows stockholders to allocate their total votes in any manner they choose

TYPES OF DPPs

DPPs can be formed to run any type of business. The most common types are real estate, oil and gas, and equipment leasing businesses.

Settlement Price

When index options are exercised, their settlement price is based on the closing value of the index on the day of exercise, not the value at the time of exercise.

Negotiated Underwriting

when the issuer and investment bank negotiate the terms of the agreement including amount of shares to be sold, public offering price, and underwriting fees.

Secured Bonds

when the issuer has identified specific assets as collateral for interest and principal payments.

Official Statement

which must be signed by an officer of the issuer, is the municipal securities industry's equivalent of the corporate prospectus. ****Prospectus for Municipal Securities Offerings****

IPO - Due Diligence Process

•Examine the use of the proceeds •Perform financial analysis and feasibility studies •Determine the company's stability •Determine whether the risk is reasonable

Types of Quotations

■A workable indication reflects a bid price at which a dealer will purchase securities from another dealer. A dealer giving a workable indication is always free to revise her bid for the securities as market conditions change. ■A nominal, or subject, quotation indicates a dealer's estimate of a security's market value. Nominal quotations are provided for informational purposes only and are permitted if the quotes are clearly labeled as such. The rules on nominal quotes apply to all municipal bond quotes distributed or published by any dealer.

General Solicitations and Advertising Private Placements

■All investors must be accredited or at least believed to be accredited at time of sale ■Following sale this issuer must verify each investor as accredited individually ■They cannot sell to the general public and can only have 35 non-accredited investors max ■The company can advertise only if they sold to accredited investors only

Forward Stock Split

2<--1 2 for 1 split. You had 1 now you have 2. Your 1 was worth $10 Your 2 are worth $5/each You still own $10 worth of company but in different form ****Companies do this when their stock is doing well and they want it to stay affordable****

CATEGORIES OF PREFERRED STOCK

6 Types of Preferred Stock ■Straight preferred ■Cumulative Preferred ■Convertible Preferred ■Participating Preferred ■Callable Preferred ■Adjustable-Rate Preferred

TARGET-DATE FUNDS

90% of all employee sponsored shits So, if you and a ton of colleagues are going to retire in 2030, then the 2030 fund will fade from aggressive to conservative as time goes on. If you're 40 years out from retirement the fund will be more aggressive and slowly move towards more safe investments at the end date nears****

Conversion Rate (Bonds)

A bond with a conversion price of $40 has a conversion ratio of 25:1 ($1,000 ÷ $40 = 25). Conversion terms are stated in the indenture agreement, either as a conversion ratio or as a conversion price.

Reciprocal Dealings (Anti-Reciprocal Rule)

A dealer cannot solicit trades in municipal securities from an investment company in return for sales by the dealer of shares or units in the investment company (anti-reciprocal rule).

Limited Power of Attorney

A limited power of attorney allows an individual to have some, but not total, control over an account. The document specifies the level of access the person may exercise. Limited power of attorney, also called limited trading authorization, allows the entering of buy and sell orders but no withdrawal of assets. Entry of orders and withdrawal of assets is allowed if full power of attorney is granted.

Full Power of Attorney

A full power of attorney allows someone who is not the owner of an account to: ■deposit or withdraw cash or securities; and ■make investment decisions for the account owner. Custodians, trustees, guardians, and other people filling similar legal duties are often given full powers of attorney. ****A durable power of attorney will survive a declaration of mental incompetence, but not death.****

Misuse of No-Load Terminology

A fund that has a deferred sales charge or an asset-based 12b-1 fee of more than .25% of average net assets may not be described as a no-load fund.

Group Net Order

A group order is placed after the bid is awarded. A syndicate member that wants a customer's order to receive priority enters the order as a group net order.

Quiet Period

A member must not publish or distribute research reports and research analysts may not make public appearances if the member has participated in the IPO. Quiet Period Minimums: 10 days following filing for IPO 3 days following filing for APO

Bond Contract

A municipal issuer enters into a bond contract with the underwriters of, and prospective investors in, its securities.

Deferred Compensation Plan

A non qualified deferred compensation plan is an agreement between a company and an employee in which the employee agrees to defer receipt of current income in favor of payout at retirement. It is assumed that the employee will be in a lower tax bracket at retirement age

TAX RULES FOR OPTIONS

Because options are capital assets, capital gains tax rules apply. The tax consequences will vary depending on how an existing position is handled.

Presale Order

A presale order is entered before the date that the syndicate wins the bid, which means that a customer is willing to place an order without knowing the final price or whether the syndicate will even win the bid.

THE SYNDICATE BID

A syndicate will present a bid to the issuer in order to win the right to represent the new issue in the primary market. If a syndicate wins the bid they will be selling the bonds to the public in the initial primary offering (IPO).

Balloon Maturity

A type of maturity schedule for an issue of bonds that shows a relatively small number of bonds maturing serially (each year) and a large number maturing in a later year

ISSUING MUNICIPAL SECURITIES

A uniform sequence of events leads to a new municipal issue. The issuer must first obtain a legal opinion, which determines whether and how the bonds may be offered. Then, the terms of the municipal bond offering may be set by either negotiation or competitive bidding.

VARIABLE ANNUITY SUITABILITY

A variable annuity can be a very important part of one's financial well-being if utilized correctly. However, there are suitability issues to consider. Variable annuities are meant to bring supplemental income into the household at a time in one's life when the income is needed. ****Therefore, supplemental income for retirement, not preservation of capital, should be the catalyst to considering a variable annuity. Here are some general rules of thumb regarding the suitability of variable annuities.****

Example of Preemptive Rights

ABC has 1 million shares of common stock outstanding. Mr. X owns 100,000 shares of ABC common stock (10%) If ABC issues an additional 500,000 shares Mr. X will have the opportunity to purchase 50,000 of those shares. (10% of new issues)

Rights of ADR Owners

ADR owners have most of the rights common stockholders normally hold. These include the right to receive dividends when declared. Generally, ADRs do not have voting rights, though some ADR issuers will pass on voting rights to the holders of ADRs. As for preemptive rights, the issuing bank sells off the rights and distributes the proceeds pro rata to holders.

Delivery of Foreign Security

ADR owners have the right to exchange their ADR certificates for the foreign shares they represent. They can do this by returning the ADRs to the depositary banks, which cancel the ADRs and deliver the underlying stock.

Subscription Agreement

All investors interested in becoming limited partners (passive investors) must complete a subscription agreement. The agreement appoints one or more GPs to act on behalf of the investors and is only effective when the GPs sign it. Along with the subscriber's money, the subscription agreement must include: ■the investor's net worth; ■the investor's annual income; ■a statement attesting that the investor understands the risk involved; and ■a power of attorney appointing the GP as the agent of the partnership.

SALES CHARGES

Although there are no stated maximum sales charges on variable annuities, the SEC has charged FINRA with the responsibility of ensuring that they are fair and reasonable. ****Surrender charge makes insurance companies most money rather than up front sales shit****

Taxation of Zero-Coupon Bonds

Although zeroes pay no regular interest income, investors in zeroes owe income tax each year on the amount by which the bonds have accreted, just as if the investor had received it in cash. The income tax is due regardless of the direction of the market price.

RETIREMENT PLANS

An important goal for many investors is to provide themselves with retirement income. Many individuals accomplish this through corporate retirement plans, others set up their own plans, and some have both individual and corporate retirement plans. There are two basic types of retirement plans in the United States: qualified and nonqualified. Generally speaking, qualified plans allow pretax contributions to be made, while nonqualified plans are funded with after-tax money. Both plans can allow money to grow tax deferred until needed. There are exceptions to these basic characteristics. Contribution limits for qualified retirement plans vary and are adjusted from time to time. A taxable distribution from any retirement plan is taxed as ordinary income, never as a capital gain.

TAXATION OF ANNUITIES *Example*

An investor has contributed $100,000 to a variable annuity. The annuity is now worth $150,000. What is the investor's cost basis, and what amount is taxable upon withdrawal? The cost basis is equal to the contributions, or $100,000. The taxable amount at withdrawal will be the earnings of $50,000. Because annuities are designed to supplement retirement income and provide tax-deferred growth, withdrawals before age 59½ are subject to the 10% early withdrawal penalty and ordinary income tax on the earnings portion of the withdrawal. When an investor chooses to annuitize and selects a monthly income payout option, each month's payment is considered partly a return of cost basis and partly earnings. Only the earnings portion is taxable. Many contract owners choose random withdrawals over the annuity option. If this choice is made, LIFO taxation applies. The IRS requires that all earnings are withdrawn first and are taxed at ordinary income rates. After earnings are completely withdrawn, there is no additional taxation because the cost basis has already been taxed.

Puts

An investor may buy puts (go long) or sell puts (go short). The features of each side of a put contract are noted as follows. ■Long put: a put buyer owns the right to sell 100 shares of a specific stock at the SP before the expiration if he chooses to exercise. ■Short put: a put writer (seller) has the obligation to buy 100 shares of a specific stock at the SP if the buyer exercises the contract.

SHORT STOCK, LONG CALL

An investor sells short 100 shares of RST at 58 and buys an RST 60 call for 3. The investor's maximum gain is $5,500; if the stock becomes worthless, the investor gains $5,800 from the short sale minus the $300 paid for the call. The maximum loss is $500; if the stock price rises above $60, the investor will exercise the call to buy the stock for 60, incurring a $200 loss on the short sale, in addition to the $300 paid for the call. The breakeven point is the stock's sale price minus the premium paid in this case, 58 - 3, or 55.

Short Straddles

An investor who writes a short straddle expects that the stock's price will not change or will change very little. The investor collects two premiums for selling a straddle.

Maximum Gain (Short Puts)

An uncovered put writer's maximum gain is the premium received. The maximum gain is earned when the stock price is at or above the exercise price at expiration.

Depreciating Assets

Because tangible assets used in business wear out over time, the government lets you take a tax deduction on the amount of wear that the asset took. There's 2 methods of depreciation ■Straight-Line: Fixed Rate ■Accelerated: For assets that get shat on in the early years of service

Assumed Interest Rate *Example*

Assume an AIR of 4% and that the actuaries have determined the first payment to be $1,000. Month 2's separate account performance is 6%, greater than AIR, so the next check goes up. Month 3's separate account performance is 4%, right at AIR. The next check received equals the last check received. Month 4's separate account performance is 3%, which is below AIR; therefore the next check received will be less than the last check received. Month 5's separate account performance is 3% again, which, although the same as month 4's, is still below AIR. The next check is, therefore, less than that of the last. Month 6's separate account performance is not shown, but if separate account performance is above the AIR of 4%, the next check will be more than $950; if it is below the AIR of 4%, the next check will be less than $950.

TAXATION OF ANNUITIES *Test Topic*

Assume an annuity is nonqualified unless a question specifically states otherwise. When contributions are made with after-tax dollars, these already taxed dollars are considered the investor's cost basis and are not taxed when withdrawn. The earnings in excess of the cost basis are taxed as ordinary income when withdrawn.

Expiration (Options)

At the expiration of an options contract, the buyer loses the premium; the seller profits from the premium. The buyer reports a capital loss equal to the premium amount; the seller reports a capital gain equal to the premium amount.

Build America Bonds (BABs)

BABs were created under the Economic Recovery and Reinvestment Act of 2009 to assist in reducing costs to issuing municipalities and stimulating the economy. While bonds to fund municipal projects have traditionally been sold in the tax-exempt arena, BABs are taxable obligations.

Current Assets

Balance sheet assets that can be turned into cash within 12 months. Cash, cash equivalents, inventory, account receivable

Liabilities

Balance sheets usually include two main types of liabilities ■current liabilities ■long-term liabilities

Feasibility Study

Before issuing a revenue bond, an issuer will engage various consultants to prepare a report detailing the economic feasibility and the need for a particular project (e.g., a new bridge or airport). The study will include estimates of revenues that will be generated and details of the operating, economic, and engineering aspects of the proposed project.

Contribution Limits

Between January 1 and April 15 (the last legal filing date), contributions and adjustments may be made to an IRA for both the current year and the previous year. Contributions of earned income may continue until age 70½. Contributions are fully deductible, regardless of income, if the investor is not covered by a qualified employer plan or, in the case of a defined benefit plan, is ineligible for coverage. If covered, or, in the case of a defined benefit plan, eligible for coverage, contributions are only deductible if the taxpayer's AGI falls within established income guidelines (and those amounts are not tested). Spousal option is available for a spouse who has little or no income. The same amount can be contributed to the individual account and the spousal IRA. An additional catch-up contribution of $1,000 annually is available for those age 50 and older.

State and Local Government Securities Series

Bonds are often prerefunded well before a call date if interest rates have fallen. With regard to municipal bonds, in order to comply with the complex arbitrage restrictions imposed by the IRS, the proceeds of a municipal prerefunding are placed in an escrow account that immediately invests in state and local government securities series.

Variable Annuity Licensing

Both an insurance license and a securities license are needed in order to sell variable insurance contracts.

OPTIONS PREMIUMS

Both bid and ask prices are quoted in cents, with a minimum price interval of $.05

Social Risk or Political Risk.

Brexit is a good example. Country is leaving EU and anything associated with Britain tanks. If America announced that it is a socialist country, you could assume that the Growth Fund of America would go to shit.

TREASURY RECEIPTS

Brokerage firms can create a type of zero-coupon bond known as Treasury receipts from U.S. Treasury notes and bonds. BDs buy Treasury securities, place them in trust at a bank, and sell separate receipts against the principal and coupon payments. ****Zero Coupies from BD's****

Defensive Industries

Business cycle doesn't affect these firms nearly as much as others ■Food ■Pharmaceuticals ■Tobacco ■Utilities Even if the economy is slumpt, people need these goods and services to live

CHANGES IN NAV

Change daily as follows: -NAV per share increases when portfolio securities increase in value or when the portfolio receives investment income -NAV per share decreases when portfolio securities decrease in value or when portfolio income and gains are paid to shareholders -NAV per share does not change when shares are sold or redeemed or when portfolio securities are bought or sold

CLASS B SHARES

Class B shares do not charge a front-end sales charge, but they do impose an asset-based 12b-1 fee greater than those imposed on Class A shares.

STOCK FUNDS

Common stock is normally found in the portfolio of any mutual fund that has growth as a primary or secondary objective

Voting Rights

Common stockholders use their voting rights to exercise control of a corporation by electing a BOD and by voting on important corporate policy matters at annual meetings, such as: ■issuance of convertible securities (dilutive to current stockholders) or additional common stock; ■substantial changes in the corporation's business, such as mergers or acquisitions; and ■declarations of stock splits (forward and reverse).

Coverdell Education Savings Accounts (CESAs) Contribution Limits

Coverdell Education Savings Accounts (CESAs) ■Contribution limit is $2,000 per year per child under age 18. ■Contributions may be made by persons other than parents; total for one child is still $2,000. ■Contributions must cease after the child's 18th birthday. ■Contributions are not tax-deductible. ■Distributions are tax-free if taken before age 30 and used for education expenses. ■Under most circumstances, if the money is not used for education or the money is distributed after age 30, earnings are subject to ordinary income tax plus a 10% penalty. The taxes are charged to the beneficiary.

LONG STOCK, SHORT CALL (COVERED CALL)

Covered calls are a very common investment strategy. It is a great way to generate income in a flat or mildly uptrending market. A covered call is when you own a stock and then sell a call. A covered call has limited risk protection. The protection is the premium received, so the breakeven is the stock price purchased minus the premium. A covered call writer has a neutral to slightly bullish sentiment. In many cases, the best time to sell covered calls is either when establishing a long equity position (buy/write) or once the equity position has already begun to move in your favor.

SHORT STOCK, SHORT PUT (COVERED PUT)

Covered puts work like covered calls, except that the equity position is short instead of long. The option sold is a put rather than a call. A covered put is a short stock position and a short put position. The investor is neutral but leaning bearish on the stock. A covered put creates an obligation to buy the stock back at the strike price of the put option.

ROTH IRA

Created in 1997, Roth IRAs allow the same contribution amounts as traditional IRAs. The maximum contribution is 100% of earned income up to an indexed maximum. Both the catch-up provision for those age 50 or older and spousal Roth IRAs are available. Earnings accumulate tax deferred. Unlike traditional IRAs, contributions are nondeductible (after-tax), contributions can be made to a Roth IRA beyond the age of 70½, and withdrawals from a Roth IRA need not begin at age 70½.

Strategies (Forex Options)

Currency options are measured relative to the U.S. dollar, and an inverse relationship exists between their exchange rates. Therefore, if the U.S. dollar is rising, relative to other currencies, then those currencies are falling. Conversely, if the U.S. dollar is falling against other currencies, then those currencies are rising.

Settlement (Forex Options)

Currency options settle, like equity options, on the next business day. When a foreign currency option is exercised, settlement occurs on the next business day as well.

Discretionary Power

Customer lets broker trade on their behalf. Document giving authorization must be present at all times that a broker is placing trades. Principal approval is required for discretionary accounts ■Each discretionary order must be identified as such at the time it is entered for execution. ■An officer or a partner of the brokerage house must approve each order promptly and in writing, but not necessarily before order entry. ■A record must be kept of all transactions. ■No excessive trading or churning may occur in the account relative to the size of the account and the customer's investment objectives.

Delivery vs. Payment (DVP)

DVP securities are delivered to a bank or depository against payment. Normally used for institutional accounts, this is a cash-on-delivery settlement. The BD must verify the arrangement between the customer and the bank or depository, and the customer must notify the bank or depository of each purchase or sale. In addition, the customer designates whether the BD should hold or forward any cash balance.

Deductions

Depreciation write-offs apply to cost recovery of expenditures for equipment and real estate (land cannot be depreciated). Depletion allowances apply to the using up of natural resources, such as oil and gas.

Distributions

Distributions may begin without penalty once the individual has reached age 59½ and required minimum distributions (RMDs) must begin by April 1 of the year after the individual turns 70½. Distributions before age 59½ are subject to a 10% penalty, as well as regular income tax. The 10% penalty is not applied in the event of: ■death; ■disability; ■purchase of a principal residence by a first-time homebuyer (up to $10,000); ■education expenses for the taxpayer, a spouse, a child, or a grandchild; ■medical premiums for unemployed individuals; ■medical expenses in excess of defined AGI limits; and ■Rule 72t: substantially equal periodic payments.

FIFO

First in first out method of calculating COGS The oldest items taken in get accounted for first

ANTI-FRAUD REGULATIONS OF THE ACTS OF 1933 AND 1934

Even though a security may be exempt from registration under certain circumstances. The Anti-Fraud provisions in Securities Act of 1933 & 1934 still apply.

BALANCING THE BALANCE SHEET

Every entry made must have an inverse effect of the opposite side of the sheet. This shit is accounting 101

Transferring Assets From One BD to Another

FINRA Rule 2273 requires registered reps, who move to a new firm and try to convince former customers to move with them, to provide educational material outlining things for the customer to consider, including financial incentives that could rise to a conflict of interest for the rep. The FINRA-prepared educational communication highlights the following potential implications of transferring assets to the new firm: ■Whether financial incentives received by the representative may create a conflict of interest ■That some assets may not be directly transferrable to the recruiting firm and, as a result, the customer may incur costs to liquidate and move those assets or account maintenance fees to leave them with his current firm

REQUIREMENTS FOR OPENING CUSTOMER ACCOUNTS

FINRA's suitability rule (FINRA Rule 2111) is based on a fundamental requirement to deal fairly with customers. Firms and their associated persons "must have a reasonable basis to believe" that a recommended transaction or investment strategy involving securities is suitable for the customer.

Capital Asset Pricing Model (CAPM)

Financial model that you plug investments and their risks into and it tells you the return to expect. Essentially, the higher the risk the higher return. CAPM uses total risk present in investments which is both Systematic and Unsystematic together

Firm Commitment vs. Best Efforts

Firm Commitment = Principal capacity, underwriter has risk Best Efforts = Agency capacity, underwriter has no risk

CURRENT INCOME

Fixed income products whose proceeds will supplement existing income. CD's, Bonds, Bills, Notes, Preferred Stock with historic dividends, income mutual funds

Floor Brokers

Floor brokers are a firm's representatives on the floor of the exchange. They execute orders on behalf of the firm and its customers.

ADVANTAGES OF EXCHANGE-TRADED FUNDS (ETFs)

Following are some advantages of ETFs when compared to open-end (mutual funds). ■Pricing and ease of trading—because individual ETF shares are traded on exchanges, they can be bought or sold anytime during the trading day at the price they are currently trading at, as opposed to mutual funds, which use forward pricing and are generally priced once at the end of the trading day. ■Margin—ETFs can be bought and sold short on margin like other exchange-traded products. Mutual funds cannot be bought on margin nor can they be sold short. ■Operating costs—ETFs traditionally have operating costs and expenses that are lower than most mutual funds. ■Tax efficiency—ETFs can and sometimes do distribute capital gains to shareholders like mutual funds do, but this is rare. Understanding that these capital gains distributions are not likely, there are no further tax consequences with ETF shares until investors sell their shares. This may be the single greatest advantage associated with ETFs.

Certificate of Limited Partnership

For legal recognition, this document must be filed in the home state of the partnership. It includes: ■the partnership's name; ■the partnership's business; ■the principal place of business; ■the amount of time the partnership expects to be in business; ■the size of each limited partner's current and future expected investments; ■the contribution return date, if set; ■the share of profits or other compensation to each limited partner; Unit 5 Direct Participation Programs 303 ■the conditions for limited partner's assignment of ownership interests; ■whether the limited partnership may admit other limited partners; and ■whether the business can be continued by remaining GPs at death or incapacity of a GP.

IRA

IRAs were created to encourage people to save for retirement in addition to other retirement plans in which they participate. The IRA discussed here is sometimes referred to as a traditional IRA. Anyone who has earned income and is under age 70½ is allowed to make an annual contribution of up to an indexed maximum ($6,000 in 2019) or 100% of earned income, whichever is less. Earned income is defined as income from work (e.g., wages, salaries, bonuses, commissions, tips, and, believe it or not, alimony). Income from investments is not considered earned income. If the contribution limit is exceeded, a 6% excess contribution penalty applies to the amount over the allowable portion (unless corrected shortly thereafter as defined by IRS rules).

Issuer Default

If a GO bond goes into default, bondholders have the right to sue to compel a tax levy to pay off the bonds. If a moral obligation bond goes into default, the only way bondholders can be repaid is through legislative apportionment.

RESIDUAL CLAIMS TO ASSETS

If a corporation is liquidated, the common stockholder (as owner) has a residual right to claim corporate assets after all debts and other security holders have been satisfied. ****The common stockholder is at the bottom of the liquidation priority list**** Because common stock is last in line in a corporate liquidation, it is known as the most junior security.

Names Deemed Misleading

If a firm has their specification in their name (XYZ Stock Fund, TTW Bond Fund, XYZ Government Fund etc...) 80% of their holdings must be in the indicative securities

Statutory Debt Limits

If a municipality wishes to issue GOs that would put it above its statutory limit, a public referendum is required. Voter approval on the referendum must follow. ■Tax Limits- Some states limit property taxes to a certain percentage of the assessed property value or to a certain percentage increase in any single year. The tax rate is expressed in mills; one mill equals $1 per $1,000, or $.001. ■Limited Tax GOs- A limited tax general obligation (GO) bond is a bond secured by a specific tax (e.g., income tax). In other words, the issuer is limited as to what tax or taxes can be used to service the debt. As a result, there is more risk with limited tax GOs than with a comparable GO backed by the full taxing authority of the issuer. ■Overlapping Debt- Several taxing authorities that draw from the same taxpayers can issue debt. Bonds issued by different municipal authorities that tap the same taxpayer wallets are known as coterminous debt.

Index Options Strategy

If a portfolio manager holds a diverse portfolio of equity, he can buy puts on the index to offset loss if the market value of the stocks fall. This use of index puts is known as portfolio insurance. Index options protect against the risk of a decline in the overall market, which is systematic or systemic risk.

Standby Underwriting

If a public firm offers a preemptive rights to existing shareholders in an APO, an IB agrees to unconditionally purchase all unsold shares as a result of rights expiring. Essentially firm commitment underwriting for an APO

LIFE ANNUITY/STRAIGHT LIFE

If an annuitant selects the life income option, the insurance company will pay the annuitant for life. When the annuitant dies, there are no continuing payments to a beneficiary.

Accounting Methods

If an investor decides to liquidate shares, she determines the cost base by electing one of three accounting methods:

Numbered Accounts

If requested, a customer's account may be identified by only a number or symbol. The customer must sign a form certifying that he owns the account(s) identified by the number or symbol and must supply other information identifying himself as the owner. *Celebrities sometimes use numbered accounts to preserve anonymity*

DEATH OF ANNUITANT

If the annuitant dies during the accumulation period, the death benefit takes effect. His beneficiary is guaranteed either the total value of the annuity or the total amount invested, whichever is greater, and is liable for income tax on any growth.

ASSUMED INTEREST RATE (AIR)

If the annuity is variable, the actuarial department of the insurance company determines the initial value for the annuity units and the amount of the first month's annuity payment. At this time, an assumed interest rate (AIR) is established. ****Seems pretty simple but the way they use AIR is below**** ■If separate account performance is greater than the AIR, next month's payment is more than this month's. ■If separate account performance is equal to the AIR, next month's payment stays the same as this month's. ■If separate account performance is less than the AIR, next month's payment is less than this month's.

RECEIVING DISTRIBUTIONS FROM ANNUITIES

If the investor chooses annuitization, the amount of the monthly check is dependent on several factors: ■Amount of money in the contract (more money equals a bigger check) ■Age (the older one is, the larger the check will be) ■Sex (females live longer than males; therefore, the check would be less for a female) ■Payout option (reviewed in this segment) ■Investment return versus assumed interest rate for variable annuities (see the following)

Call Risk

If you own a bond that pays 6% annually and the Fed lowers rates to 3%, then the issuer of that bond won't want to pay the higher rate of an old issue. They will call you bond back, cease the payments and the investor is left to turn to the market and buy a 3% bond. ****The risk of losing a fire bond if interest rates shit the bed.****

Protection of a Long Stock Position (Long Puts)

If you own a stock, obviously you don't want it to go down in value Buying a put that increases in value the lower the stock goes will help offset any losses from straight equity

WASH SALES

If you own some stock that has tanked or gained and you are trying to get taxed at a more favorable rate you would liquidate, take your gain or loss and then repurchase the same stock again. Can't repurchase for 6 months ****THIS IS A WASH SALE AND FINRA SAYS NOT GUCCI**** You can't make any trade that is deemed very similar to repurchasing the stock; ■securities convertible into the one being sold; ■warrants to purchase the security being sold; ■rights to purchase the security being sold; and ■call options to purchase the security being sold.

Protection of a Short Stock Position (Long Call)

If you've got an active short position open in a stock, buying the option will allow you to offset losses in the even of rising prices.

CLOSING TRANSACTIONS

If your option is in the money, it is basically pure profit for anyone else who wants to exercise it. You can buy and sell only options without exercising. This is how most options traders make money

Married Put

If, on the same day, a customer buys stock and buys a put option on that stock as a hedge, the put is said to be married to the stock.

JOINT ACCOUNTS

In a joint account, two or more adults are named on the account as co-owners, with each allowed some form of control over the account. In addition to the appropriate new account form, a joint account agreement must be signed. The account forms for joint accounts require

Participating Preferred

In addition to fixed dividends, participating preferred stock offers owners a share of corporate profits that remain after all dividends and interest due other securities are paid. ****If a preferred stock is described as "XYZ 6% preferred participating to 9%," the company could pay its holders up to 3% in additional dividends in profitable years, if the board so declares.****

Expiration Dates

Index options expire on the third Friday of the expiration month.

Multiplier

Index options typically use a multiplier of $100. The premium amount is multiplied by $100 to calculate the option's cost, and the SP is multiplied by $100 to determine the total dollar value of the index.

Countercyclical Industries

Inverse of Natural business cycle. Industries that do better when everyone else does bad. Gold has traditionally been counter cyclical as the standard of owning gold becomes more enticing as the Market/ Dollar does poorly. The inverse happens when the market does well. Why own gold when the market is killing it

INDEX OPTIONS

Options on indexes allow investors to profit from the movements of markets or market segments and hedge against these market swings.

INVESTMENT COMPANY PURPOSE

Investment companies allow investors to pool their money together and have a professional invest the money to a clearly defined investment objective.

Treasury Notes (T-Notes)

Issued in denominations of $100 to $5 million, T-notes are intermediate-term bonds maturing in two to 10 years. T-notes mature at par, or they can be refunded. If a T-note is refunded, the government offers the investor a new security with a new interest rate and maturity date as an alternative to a cash payment for the maturing note.

Tender Offer

It is not uncommon for one company to attempt to takeover another by acquiring a significant percentage of its voting shares. This is known as a tender offer. A tender offer may also be made by an issuer of noncallable bonds when interest rates have fallen. The SEC defines tender offer as "an active and widespread solicitation by a company or third party (often called the bidder or offeror) to purchase a substantial percentage of the company's securities. Bidders may conduct tender offers to acquire equity (common stock) in a particular company or debt issued by the company. A tender offer where the company seeks to acquire its own securities is often referred to as an issuer tender offer. A tender offer where a third party seeks to acquire another company's securities is referred to as a third party tender offer." In general, tender offers for equity securities need shareholder approval.

Joint Tenants With Rights of Survivorship (JTWROS)

JTWROS ownership stipulates that a deceased tenant's interest in the account passes to the surviving tenant(s).

LIFO

Last in first out The newest items acquired get accounted for before the older items.

CAPITAL GAINS DISTRIBUTIONS

Long-term capital gain: Holding period of more than one year, taxed as a capital gain, which is (generally) lower than ordinary income tax rates for an investor. Short-term capital gain: Holding period of one year or less, taxed at ordinary income tax rates for an investor.

REPORTS OF SALES

MSRB rules prohibit dealers from distributing or publishing any report of a municipal security's purchase or sale unless they know or have reason to believe that the transaction took place. BDs reporting the sale must believe that the reported trade is real and not fictitious, fraudulent, or deceitful.

Customer Recommendations and Suitability

MSRB rules require municipal securities BDs to make suitable recommendations to customers. Before making a recommendation, a municipal securities firm must make a reasonable effort to learn the customer's financial status, tax status, investment objectives, and other holdings. The suitability test applies to discretionary accounts and all other accounts.

MUTUAL FUND DISTRIBUTIONS AND TAXATION

Most monies received by an individual are subject to income tax. This includes salaries, bonuses, commissions, gratuities, dividends, and interest. Receipts from selling something for more (or less) than was originally paid for it fall under the capital gains tax. If there was a gain, tax must be paid on it. If there was a loss, it can be used to offset gains and income.

Tax-Free (Tax-Exempt) Bond Funds

Municipal bond funds invest in municipal bonds or notes that produce income (dividends) exempt from federal income tax. These funds are appropriate for investors in a high marginal tax bracket seeking income.

Municipal Bond Insurance

Municipal bond issuers can insure their securities' principal and interest payments by buying insurance from a number of insurers. Among those specializing in insuring municipal issues are National Public Finance Guarantee Corp. (formerly the Municipal Bond Investors Assurance Corporation—MBIA), Financial Guaranty Insurance Company (FGIC), Assured Guaranty Corporation (AGC), and AMBAC Indemnity Corporation (AMBAC). While AMBAC is not currently insuring new municipal issues, there are many AMBAC insured municipal bonds still outstanding.

ORDER ALLOCATION

Municipal bond orders are allocated according to priorities the syndicate sets in advance. The Municipal Securities Rulemaking Board (MSRB) requires syndicates to establish priorSeries7_ Unit 6 Municipal Securities 343 ity allocation provisions for orders. The managing underwriter must submit these provisions to all syndicate members in writing. Normally, the manager includes allocation priorities and confirmation procedures in the syndicate agreement.

Due Diligence

Municipal underwriters must investigate an issuer's financing proposals thoroughly. With revenue bonds, this due diligence investigation is conducted through a feasibility study, which focuses on the projected revenues and costs associated with the project and an analysis of competing facilities.

MUTUAL FUND DIVIDENDS

Mutual funds issue dividends same as normal companies Qualified dividends are taxed at the lower long-term capital gains rate. Nonqualified dividends are distributed as short-term capital gains and are taxed as ordinary income.

PAYMENT AND DELIVERY

New municipal bond issues are usually sold on a when-issued basis, meaning the securities are authorized but not yet issued. After awarding an issue to a syndicate, the issuer has the bond certificates printed and finalizes any other legal matters. If the bonds are to be eligible for automated comparison and clearing, the managing underwriter must register the securities with a registered clearing agency, providing the agency with notice of the securities' coupon rate and settlement date as soon as they are known.

Open-End Management Companies (Mutual Funds)

No set amount of shares, price updated once daily and end of trading day, uses NAV, liquid but can be illiquid

NONQUALIFIED PLANS

Nonqualified plans may be used to favor certain employees (typically executives) because nondiscrimination rules are not applicable to nonqualified plans.

Exercise Limits

OCC exercise limits are the maximum number of contracts that can be exercised on the same side of the market within a specified time frame. Currently, the time frame is five consecutive business days.

COLLAR

Occasionally, an investor may hedge his downside risk on a long position of stock for no out-of-pocket cash.

Municipal Securities' Version of Prospectus

Official Statement

OIL AND GAS PARTNERSHIPS

Oil and gas programs include speculative drilling programs and income programs that invest in producing wells. Unique tax advantages associated with these programs include intangible drilling costs and depletion allowances.

Confirmations of Sales to Customers

On or before the completion of the transaction (settlement date), final confirmations must be sent to investors who purchased bonds from the underwriters. The investors' confirmations disclose the purchase price and settlement date for the transaction. The underwriters then deliver the bonds, accompanied by the legal opinion, to the investors.

Bond Resolution Indenture

On the face of most municipal revenue bond certificates is a reference to the bonds' underlying trust indenture, also known as a protective covenant.

Hedge Fund Lock-Up Provisions

Once you're invested you gotta hold your funds for a while. Otherwise who would start a fukking hedge fund.

OPTION EXERCISE

Option contracts are exercised or sold if they are in-the-money. ****If exercised, writers are required to fulfill their obligations as required.****

OPTION EXPIRATION

Option contracts expire worthless if they are at-the-money or out-of-the-money at expiration. ****At expiration, the buyer of the option loses the premium paid; the seller of the option profits by the amount of the premium received.****

OPTIONS TRADING PERSONNEL

Options are traded most heavily on the Chicago Board Options Exchange (CBOE) in a double-auction market. Following are the key trading roles.

Options Contract Adjustments

Options contracts are adjusted for stock splits, reverse stock splits, stock dividends, and rights offerings. They are not adjusted for ordinary cash dividends or for cash distributions of less than $12.50 per option contract. Adjustments to the number of shares are rounded down to the next whole share.

Options Quotes

Options contracts are issued to include 100 shares of stock, so the total premium is calculated by multiplying by 100. However, some contracts may be subject to stock splits and stock dividends and may include more than 100 shares

Market Makers

Options market makers are registered with the exchange to trade for their own accounts. ****They must stand ready to buy or sell options in which they make markets.****

PREFERRED STOCK FIXED-RATE OF RETURN

Preferred stock's fixed dividend is a key attraction for income-oriented investors. Normally, a preferred stock is identified by its annual dividend payment stated as a percentage of its par value, which is usually $100 on the Series 7 exam. A preferred stock with a par value of $100 that pays $6 in annual dividends is known as a 6% preferred.

Municipal Securities Version of Preliminary Prospectus

Preliminary Official Statement

Legal Opinion

Printed on the face of every bond certificate (unless the bond is specifically stamped Ex-Legal) is a legal opinion written and signed by the bond counsel, an attorney specializing in tax-exempt bond offerings. The legal opinion states that the issue is legally binding on the issuer and conforms to applicable laws. If interest from the bond is tax-exempt, that too is stated in the legal opinion.

Generic Advertising

Promotes securities as investment vehicle but doesn't specifically state any security names. Generic Advertising includes info about; •Types of Securities Investments Offered •The nature of the firm •Services offered in connection with described securities •Where public can call or write for more info

Ad Valorem Taxes

Property taxes are based on a property's assessed valuation. Assessed valuation is a percentage of the estimated market value. That percentage is established by each state or county and varies substantially. The market value of each piece of property in a county is determined by the county assessor, who relies on recent sale prices of similar properties, income streams, replacement costs, and other information.

CUSTOMER INFORMATION AND SUITABILITY

Registered representatives must always know their client prior to making any recommendation. A customer's investment objectives may lead to a recommendation to buy, sell, or hold a security. All recommendations, even a hold recommendation, must be suitable for the client's situation.

Tax Benefits (Muni)

Purchasers of municipal debt often benefit from favorable tax treatment on the interest payments. The federal government does not generally tax the interest payments. This tax treatment originated from the doctrine of reciprocal immunity (doctrine of mutual reciprocity), established by a Supreme Court decision in 1895.

State Registration

Qualification - The issuer files with the state, independent of federal registration and must meet all state requirements Coordination - The issuer simultaneously registers with SEC and state. Both registrations become effective on the same date Notice Filing - For Federal covered securities, state registration is not required but states often require a notice to be filed that states the issuers intent to sell securities in the state. Fees apply

Convertible Bond Parity Calculations *Test Topic*

RST bond is convertible to common at $50. If RST bond is currently trading for $1,200, what is the parity price of the common? Method One: Parity means equal. Solve for the conversion ratio as follows: Par value: $1,000 Conversion price: $50 Conversion ratio: 20 The parity stock price is found by dividing $1,200 by 20. The parity price of the common is $60. Method Two: If you prefer to think in percentages, identify that the new bond price of $1,200 is 20% greater than the original $1,000 price. To be at equivalence, the stock price must also increase by 20%. So, add 20% to 50 and the problem is solved—20% of 50 is 10; 10 + 50 = parity price of $60. Here is another style of parity question. RST bond is convertible to common at $50. If the common is trading for $45, what is the parity price of the bond? Start by solving for the conversion ratio. Par value: $1,000 Conversion price: $50 Conversion ratio: 20 The bond price is found by multiplying 20 × 45. The parity price of the bond is $900. Using the percentage method, you can determine that the market price of the common stock is 10% below that of the conversion price (5 ÷ 50 = 10%). Reducing the bond price of $1,000 by 10% results in a parity price of the bond of $900.

REAL ESTATE PARTNERSHIPS

Real estate DPPs provide investors with the following benefits: ■Capital growth potential—achieved through appreciation of property ■Cash flow (income)—collected from rents ■Tax deductions—from mortgage interest expense and depreciation allowances for "wearing out the building" and capital improvements ■Tax credits—for government-assisted housing and historic rehabilitation (reduce tax liability dollar-for-dollar but are subject to recapture)

PORTFOLIO DIVERSIFICATION

Reduces risk by spreading money among a wide array of investments. This is the whole "Don't put all your eggs in one basket" deal If a sector tanks, you'll get killed. If the market overall is doing well you'll see gains from everywhere.

ACCUMULATION AND WITHDRAWAL PLANS

allows a customer to deposit regular periodic investments on a voluntary basis (minimum amounts found in the prospectus)

Securities Act of 1933 (Paper Act)

Requires issuers of new securities to file registration statements with the SEC in order to provide investors with complete and accurate info when soliciting sales. Think of this as the paper act because it called for a lot of extra paperwork to be filed and shit. 1933 act deals with IPO's, prospectuses and shit.

Sources of Revenue

Revenue bonds' interest and principal payments are payable to bondholders only from the specific earnings and net lease payments of revenue-producing facilities, such as: ■utilities (water, sewer, and electric); ■housing; ■transportation (airports and toll roads); ■education (college dorms and student loans); ■health (hospitals and retirement centers); ■industrial (industrial development and pollution control); and ■sports.

Market Risk

Risk inherently present in open markets. The risk of market volatility and high trading volume moving the price of a security negatively.

Business Risk

Risk of the corporation whose stock you owns fails. All reasons a business would fail lie here. Poor management, fraud, theft

Liquidity Risk

Risk that money can't be accessed when needed, or when a security can't be quickly liquidated. Say a private stock that normally sell when all is good needs to be sold when the company is tanking. No active market to bring to and no buyers. You hold it and have no choice but to watch it dwindle.

Bond Ratings

S&P/Moody's ■AAA/Aaa <-- Highest Rating, Super Solid ■AA/Aa <-- Very Strong, barely missed the top ■A/A <-- Slightly more sensitive to economic conditions ■BBB/Baa <-- Adequate to pay back interest and principal __________________________________________________________ RATED SPECULATIVE BELOW THIS LINE ---------------------------------------------- ■BB/Ba <-- Speculative, probable that issuer will miss a payment ■B/B <-- Issuer has already missed one or more interest/ principal payments ■C/Caa <-- Interest isn't even being paid rn ■D/D <-- ISSUER IS IN DEFAULT

Section 457 Plan

Section 457 plans are non qualified retirement plans set up by state and local governments and tax-exempt employers for their employees and independent contractors that work for those entities. They function as deferred compensation plans in which earnings grow tax deferred and all withdrawals are taxed at the time of distribution. Employees may defer up to 100% of their compensation, up to an indexed contribution limit.

EXEMPT TRANSACTIONS

Securities offered by industrial, financial, and other corporations may qualify for exemption from the registration statement and prospectus requirements of the Securities Act of 1933 under one of the following exclusionary provisions: ■Regulation A+: small and medium corporate offerings ■Regulation D: private placements ■Rule 147: securities offered and sold exclusively intrastate ■Regulation S: offers and sales made outside the United States by U.S. issuers ■Other exempt transactions, including Rule 144, Rule 144A, and Rule 145

Closed-End Funds (ETFs)

Set amount of shares, price changes at rate of market, trades like stock, super liquid.

Strategic Asset Allocation

Set target allocations in a portfolio and over time as each asset class grows and shrinks you must re balance to the target allocations. If stock market is killing it, portfolio will be heavily weighted in stocks. Those stocks would be sold and used to buy bonds to re balance portfolio.

SALES CHARGES VL CONTRACTS *Test Topic*

Several testable facts about sales charges and refunds are as follows. ■The maximum sales charge over the life of the contract is 9%. ■A policyowner who wants a refund within 45 days receives all money paid. ■After a VL policy has been in effect for two years, the surrender value of the policy is the cash value.

Current Liabilities

Shit that can be paid back in 12 months ■Accounts payable—amounts owed to suppliers of materials and other business costs ■Accrued wages payable—unpaid wages, salaries, commissions, and interest ■Current long-term debt—any portion of long-term debt due within 12 months ■Notes payable—the balance due on equipment purchased on credit or cash borrowed ■Accrued taxes—unpaid federal, state, and local taxes

Long-Term Liabilities

Shit that takes longer than 12 months to pay back ■Bonds ■Mortgages

Funds of Hedge Funds

Since hedge funds are for the big boys (accredited investors and shit) if you a normal person want to invest in hedge funds, buy into a fund that tracks a hedge fund. These shares can only be liquidated when the issuer wants to take them since the underlying holdings are illiquid.

Short-Interest Theory

Since short positions eventually have to be covered, this theory states that a high volume of short positions in a market creates a "Mandatory Demand" When short volume is up it's a bullish indicator When short volume is down its a bearish indicator

Dollar Bonds

Some municipal revenue bonds are quoted on a percentage of par dollar basis rather than on a yield basis. Such bonds are commonly called dollar bonds. Dollar bonds are usually term bonds callable before maturity. Be sure to recognize that a bond quoted at 104, for example, is a dollar bond, and that the "104" actually represents its price expressed as a percentage of par value. Therefore, a quote of 104 = 104% of par value or 104% × $1,000 = $1,040. If the bond quote was 104 3/8, the price would be $1043.75 ($1040 + 3/8 of $10, or $3.75).

Statutory voting

Statutory voting allows a stockholder to cast one vote per share owned for each item on a ballot, such as candidates for the BOD. A board candidate needs a simple majority to be elected. If investor own 100 shares and there are 3 spots open on the board then he has 300 votes. 100 shares x 3 spots to vote for = 300 votes

When are stock dividends most likely to be paid *Test Topic*

Stock dividends, rather than cash dividends, are more likely to be paid by companies that wish to reinvest earnings for research and development. Technology companies, aggressive growth companies, and new companies are examples of companies likely to pay stock a stock dividend. When a stock dividend is paid, the shareholder receives more common stock of the issuer. There is no economic benefit, because the price of the security is reduced by the amount of the distribution on the morning of the ex-date.

Stockholder Liability

Stockholders cannot lose more than the amount they have paid for a corporation's stock. Limited liability protects stockholders from having to pay a corporation's debts in bankruptcy.

Inspection Rights

Stockholders have the right to receive annual financial statements and obtain lists of stockholders. Inspection rights do not include the right to examine detailed financial records or the minutes of BOD meetings.

Special Situation Stocks

Stocks who experience rapid and large growth on a non-recurring basis. Say an oil producer finds a ton of crude deposits on land they already own. Production becomes super cheap and the stock will blow up. Once the oil is gone, it's gone.

Accounting for Depreciation

Super simple idk why this is on the series 7 honestly. 10 year life of asset w/ 100k cost basis 10% Depreciated on books until the asset is worthless. The asset should be broken IRL

Syndicate Management Fee

Syndicate managers receive a per bond fee for their work in bringing the new issue to market.

Syndication

Syndicates are responsible for distributing stock to potential investors and must sign a Syndicate agreement/ letter that lays out responsibilities, participants and allocation of compensation.

Pricing for T-Bills

T-bills are quoted on a yield basis and sold at a discount from par. They are zero-coupon securities. Sample T-Bill Quotation Bid: 1.15 Ask: 1.12 The bid or people trying to by quote higher for T-Bills since they are looking for dank yields The ask is pitiful because cuck face needs to get off his T-Bill keeping as much yield as possible

Treasury Bonds (T-Bonds)

T-bonds are issued in denominations of $100 to $5 million and mature in more than 10 years from the date of issue.

Pricing for T-Bonds

T-bonds are quoted exactly like T-notes (1∕32% of par).

Tax Credits

Tax credits are dollar-for-dollar reductions of taxes due and are the greatest tax benefit available to taxpayers.

Legislative Risk

Tax rate goes from 4% to 40%. Risk that companies will get boned by new taxes

TAX ADVANTAGES

Tax shelters, tax deferral, tax exemptions Muni bonds are Federal tax exempt Annuities & IRA's grow tax deferred ****MUNI BONDS ARE NOT GUCCI IN RETIREMENT ACCOUNT BC THEY TAX THAT SHIT WHEN W/D****

Mini-Options

The CBOE also offers option contracts known as mini-options. These contracts overlay only 10 shares of the underlying security instead of 100 shares, as is the case for standard options contracts. With standard contracts, the multiplier is 100 (Ex: 2 premium = $200). With minioption contracts, the multiplier is only 10. Therefore, a mini-option contract premium of 2 represents only $20.

Fannie Mae

The FNMA is a publicly-held corporation that provides mortgage capital. FNMA purchases conventional and insured mortgages from agencies such as the FHA and the VA. The securities it creates are backed by FNMA's general credit.

Disproportionate Sharing

The GP bears a relatively small percentage of expenses but receives a relatively large percentage of the revenues.

Reversionary Working Interest

The GP bears no costs of the program and receives no revenue until limited partners have recovered their capital. Limited partners bear all deductible and nondeductible costs.

Net Operating Profits Interest.

The GP bears none of the program's costs but is entitled to a percentage of net profits. The limited partners bear all deductible and nondeductible costs. This arrangement is available only in private placements.

Carried Interest

The GP shares tangible drilling costs with the limited partners but receives no IDCs. Limited partners receive the immediate deductions, whereas the GP receives write-offs from depreciation over the life of the property.

Best Efforts Underwriting

The IB acts as AGENT not PRINCIPAL. They sell as many shares as they possibly can and stand no liability for any unsold shares. 2 forms of Best Efforts Underwriting •All or none •Mini-Max

Depletion Allowances

The IRS allows allowances in the form of tax deductions that compensate the partnership for the decreasing supply of oil or gas (or any other resource or mineral).

STOCK HOLDING PERIODS

The IRS does not allow the use of options to postpone the sale of stock for the purpose of generating long-term capital gains treatment. Options that allow an investor to lock in a sale price are long puts. If stock has been held 12 months or less before the purchase of a put, the gain will be classified as short-term.

Protective Covenants

The face of a revenue bond certificate may refer to a trust indenture (or bond resolution). This empowers the trustee to act on behalf of the bondholders. ****In the trust indenture, the municipality agrees to abide by certain protective covenants, or promises, meant to protect bondholders. A trustee appointed in the indenture supervises the issuer's compliance with the bond covenants.*****

12B-1 ASSET-BASED FEES

The fee is deducted quarterly as a percentage of the fund's average total NAV. ■The maximum 12b-1 fee is .75% for distribution and promotion. ■The fee must reflect the anticipated level of distribution services.

Issuers (Munis)

The following three entities are legally entitled to issue municipal debt securities: ■Territorial possessions of the United States (U.S. Virgin Islands, Puerto Rico, and Guam) ■State governments ■Legally constituted taxing authorities (county and city governments, agencies created by these governments, and authorities that supervise ports and mass transit systems, such as port authorities and special districts)

TAXATION OF REINVESTED DISTRIBUTIONS

The fund must disclose whether each distribution is from income or capital gains. Form 1099-DIV, which is sent to shareholders after the close of the year, details tax information related to dividend distributions for the year. This enables the investor to enter the proper information on the investor's Form 1040.

Competitive Bidding

The gold standard method for choosing underwriters in regards to the Issue of new Municipal Securities.

Overriding Royalty Interest

The holder of this interest receives royalties but has no partnership risk. An example of this arrangement is a landowner that sells mineral rights to a partnership.

Fixed Annuities

The insurance company is then obligated to pay a guaranteed amount of payout (typically monthly) to the annuitant based on how much was paid in.

REFUND PROVISIONS

The insurer must extend a free-look period to the policyowner for 45 days from the execution of the application, or for 10 days from the time the owner receives the policy, whichever is longer. During the free-look period, the policy owner may terminate the policy and receive all payments made.

JOINT LIFE WITH LAST SURVIVOR ANNUITY

The joint life with last survivor option guarantees payments over two lives. It is often used for spouses. Because the insurance company is obligated to pay a check over two lifetimes, this check is considered to be smaller than a life with period certain option. ****If the husband were to die first, the wife would continue to receive payments as long as she lives. If the wife were to die first, the husband would receive payments as long as he lives. Typically, the payment amount is reduced for the survivor.****

Income of the Municipality

The primary sources of municipal income are discussed below. ■Income and sales taxes are major sources of state income. ■Real property taxes are the principal income source of counties, and school districts are the largest source of city income. ■City income can include fines, license fees, assessments, sales taxes, hotel taxes, city income taxes, utility taxes, and any city personal property tax.

Member Order and Member-Related Order

The lowest priority for orders goes to member and member-related orders. A member firm enters such an order for its own inventory or related accounts, such as for a dealer-sponsored unit investment trust (UIT).

Maximum Gain (Long Puts)

The maximum potential gain available to put owners is the option's SP less the amount of the premium paid (same as the breakeven). A stock's price can fall no lower than zero.

Beta Coefficient

The measure of an investments volatility in reference to the over all market (S&P 500). Securities not affected by the stock market have betas of zero. a Bank CD isn't affected by industrial price swings. $TSLA is very volatile when compared to the market and has a high beta

Maximum Loss (Long Call)

The most the call buyer can lose is the premium paid; this happens if the market price is at or below the SP at the option's expiration.

Maximum Loss (Long Puts)

The most the put buyer can lose is the premium paid. This happens if the market price is at or above the SP at the option's expiration.

Authorizing Resolution

The municipality authorizes the issue and sale of its securities through the bond resolution. The authorizing resolution contains a description of the issue.

Future Financial Needs

The municipality's financial statements should be scrutinized for signs of future debt requirements. The municipality might need to issue more debt if: ■its annual income is not sufficient to make the payments on its short-term (or floating) debt; ■principal repayments are scheduled too close together; ■sinking funds for outstanding term bonds are inadequate; ■pension liabilities are unfunded; or ■it plans to make more capital improvements soon.

Designated Order

The next highest priority for orders received during the order period is assigned to designated orders. These orders are usually from institutions that wish to allocate the takedown to certain syndicate members.

Official Notice of Sale

The official notice of sale to solicit bids for the bonds is usually published in The Bond Buyer and local newspapers and includes ****Binding to take order & indications of interest****

Total Takedown

The portion of the spread that remains after subtracting the management fee is called the total takedown. Members buy the bonds from the syndicate manager at the takedown. In the example, for a 1-point spread with a management fee of 1/8 point, the takedown is 7/8 point ($8.75).

Preliminary OS

The preliminary official statement discloses most of the same material information as the OS, with the exception of the issue's interest rate(s) and offering price(s). Underwriters use a preliminary OS to determine investors' and dealers' interest in the issue.

Factors Affecting Premium

The premium of an option is affected by many factors, including: ■volatility; ■amount of intrinsic value; ■time remaining until expiration; and ■interest rates. ****The factor with the greatest influence is the volatility of the underlying stock.****

Buying Stock Below Its Current Price (Short Puts)

The premium received from writing puts can be used to offset the cost of stock when the put is exercised against the writer.

BREAKDOWN OF THE SPREAD

The price at which the bonds are sold to the public is known as the reoffering price (or reoffering yield). ****The syndicate's compensation for underwriting the new issue is the spread, or the difference between the price the syndicate pays the issuer and the reoffering price.****

Capital Risk

The risk of losing some or all money that an investor assumes

Interest Rate Risk

The risk that a 3% will tank when rates get cranked to 4.75%. Your bond used to be fire, now its trash and you own a security worth the value of trash. The longer the term on a bond is, the higher the interest rate risk

GLOBAL FUNDS

The risks involved in a fund concentrating in foreign securities are somewhat different than those for a domestic fund. ****When a portfolio has a large percentage of foreign securities, currency risk and political risk becomes paramount.****

Protecting the Public and Restricted Persons Prohibitions (FINRA Rule 5130)

The rule is designed to protect the integrity of the public offering process by ensuring that: ■members make a bona fide public offering of securities at the POP; ■members do not withhold securities in a public offering for their own benefit or use such securities to reward persons who are in a position to direct future business to the member; and ■industry insiders, such as members and their associated persons, do not take advantage of their insider status to gain access to new issues for their own benefit at the expense of public customers.

SALES CHARGES VL CONTRACTS

The sales charges on a fixed-premium VL contract may not exceed 9% of the payments to be made over the life of the contract.

Average Basis

The shareholder may elect to use an average cost basis when redeeming fund shares. The shareholder calculates average basis by dividing the total cost of all shares owned by the total number of shares.

Odd-Lot *Test Topic*

The standard trading unit for equity securities is a round lot. A round lot is 100 shares. An odd-lot is something less than 100 shares. If a trade is made for 550 shares of common stock, the trade was for five round lots (500 shares) and one odd-lot (50 shares).

ANNUITY PLANS

The term annuity refers to a stream of payments guaranteed for some period of time—for the life of the annuitant, until the annuitant reaches a certain age, or for a specific number of years.

TAX REPORTING FOR PARTNERSHIPS

The term flow-through (or pass-through) means that all the income and losses and corresponding tax responsibilities go directly to the investors with no taxation to the business entity.

Terms of the Offering

The terms of a rights offering are stipulated on the subscription right certificates mailed to stockholders. The terms describe how many new shares a stockholder may buy, the price, the date the new stock will be issued, and the final date for exercising the rights.

Trust Indenture

The trust indenture's provisions may vary, but a number of standard provisions are common to most bond issues, including the following: ■Rate covenant—a promise to maintain rates sufficient to pay expenses and debt service ■Maintenance covenant—a promise to maintain the equipment and facility/facilities ■Insurance covenant—a promise to insure any facility built so bondholders can be paid off if the facility is destroyed or becomes inoperable ■Additional bonds test—whether the indenture is open-ended (allowing further issuance of bonds with the same status and equal claims on assets or revenues if permitted under the provisions of the bond indenture) or closed-ended (allowing no further issuance of bonds with an equivalent lien on assets or revenues); with a closed-end provision, any additional bonds issued will be subordinated to the original issue unless the funds are specifically required to complete construction of the facility ■Sinking fund—money to pay off interest and principal obligations ■Catastrophe clause—a promise to use insurance proceeds to call bonds and repay bondholders if a facility is destroyed; a catastrophe call is also called a calamity call or an extraordinary mandatory call ■Flow of funds—the priority of disbursing the revenues collected ■Books and records covenant—requires outside audit of records and financial reports ■Call features—call date(s) and call price(s)

UNIT REFUND OPTION *Test Topic*

The unit refund option is the only lifetime annuitization option that guarantees all of the money in the contract will be distributed. If unit refund is chosen for a $100,000 contract, the insurance company guarantees that a minimum of $100,000 will be distributed, and also guarantees a monthly check for life. Therefore, more than $100,000 may be distributed, but never less. Unit refund is sometimes offered as a rider. ****For test purposes, this option represents the smallest check a person could receive for the rest of her life.****

SINGLE OPTION STRATEGIES

There are four basic strategies available to options investors: ■Buying calls ■Writing calls ■Buying puts ■Writing puts

REGISTRATION TYPES

There are many different registration types available when opening an account at a BD.

EMPLOYER-SPONSORED PLANS

There are many types of retirement plans that corporate entities can provide employees to encourage saving for retirement.

Section 529 plans

There are two basic types of 529 plans: ■prepaid tuition plans ■college savings plans.

EDUCATION PLANS

There are two education savings plans you should be familiar with for your Series 7 exam. ■529 Plans ■Coverdell Education Savings Accounts

Calculating the Number of Votes

There are two methods of counting common stock votes ■Statutory voting ■Cumulative voting

CALLS AND PUTS

There are two types of options contracts: the call contract and the put contract.

PURCHASING ANNUITIES *Test Topic*

There is no such thing as a periodic payment immediate annuity.

Certificates of Participation

These are a form of lease revenue bond that permits the investor to participate in a stream of revenue from lease, installment, or loan payments related to the acquisition of land or the acquisition or construction of specific equipment or facilities by the municipality.

Special Tax Bonds

These are bonds secured by one or more designated taxes other than ad valorem (property) taxes. For example, bonds for a particular purpose might be supported by sales, tobacco, fuel, or business license taxes.

employee stock purchase program (ESPP).

These plans provide a convenient method for employees to purchase company shares. Employee stock purchase plans are essentially a type of payroll deduction plan that allows employees to buy company stock without effecting the transactions themselves.

Tax Credit BABs

These types of BABs provide the bondholder with a federal income tax credit equal to 35% of the interest paid on the bond in each tax year. If the bondholder lacks sufficient tax liability to fully use that year's credit, the excess credit may be carried forward.

Functional Allocation

This is the most common sharing arrangement. The limited partnerships receive the IDCs, which allow immediate deductions. The GP receives the tangible drilling costs, which are depreciated over several years. Revenues are shared.

THE PAYOUT PHASE

This is the time during which the annuity is annuitized. The cash value is paid to the annuitant, either as a lump sum or as a stream of income over a period of time

Donor Taxes

This tax is payable by the estate, not by heirs who inherit the estate (although certain other taxes may apply to heirs).

Thomson Muni Market Monitor (Formerly Munifacts)

Thomson has been offering wire services, such as Thomson Muni News and the Thomson Muni Market Monitor (formerly Munifacts), used by numerous municipal dealers for many years. Current news items pertaining to the secondary municipals market appear in these wire services throughout the day along with current municipal offerings.

Required Documentation (LP)

Three important documents are required for limited partnerships to exist: ■The certificate of limited partnership ■The partnership agreement ■The subscription agreement

Diversified

To be diversified a company must pass the 75-5-10 test ■At least 75% of the fund's total assets must be invested in securities issued by companies other than the investment company itself or its affiliates. ■The 75% must be invested in such a way that --no more than 5% of the fund's total assets are invested in the securities of any one issuer, and --no more than 10% of the outstanding voting securities of any one issuer is owned (by the 75%).

Inheritance

When a person dies and leaves securities to heirs, the cost basis to the recipient is the Fair Market Value (FMV) on the date of the owner's death. ****A father purchased $5,000 of ABC stock in 2005. When he died, the stock was valued at $10,000. If the stock was left to his children, they receive an automatic step up to the FMV on the date of death ($10,000). Therefore, if the stock was sold for $10,000 after inheriting it, there would be no tax due on the sale.**** Essentially Market value at time of death is the basis on which the inheritance is received

Dow Theory

Used to confirm the end of a major market trend According to the theory, the three types of changes in stock prices are primary trends (one year or more), secondary trends (3-12 weeks), and short-term fluctuations (hours or days). According to the Dow theory, the primary trend in a bull market is a series of higher highs and higher lows. In a bear market, the primary trend is a series of lower highs and lower lows. Daily fluctuations are considered irrelevant.

Pricing of New Issues

Variable to Consider •Indications of interest •Prevailing Market Conditions •Recent IPO's POP •Price that IB accepts •Companies dividend history •Company's debt ratio

Alpha

What analysts use when advising to buy, sell or hold. Derivative of Beta Coefficient Beta gives expected return for investment, alpha is the level at which the actual returns from an investment meet, exceed or fall short of expectations. α>1 <-- BUY α=1 <-- HOLD α<1 <-- SELL

LIQUIDITY

When a customer needs access to all or part of their funds invested. This means access portion of principle in fixed income products For equities it means either high paying dividends or trading liquid products with Market Makers ready to buy ■Stocks aren't illiquid because NYSE stock sell instantly ■Annuities offer partial liquidity when they allow 10% of CV to withdraw annually.

TRANSFERRING CUSTOMER ACCOUNTS BETWEEN BDs

When a customer—whose securities account is carried by a BD—wants to transfer the account to another BD, the Automated Customer Account Transfer Service (ACATS) automates and standardizes the procedure for the transfer. The customer signs a Transfer Initiation Form (TIF), which is sent to ACATS by the receiving firm. For purposes of this rule, customer authorization could be the customer's actual signature or an electronic signature. Once forwarded and received by the carrying firm, it has one business day to validate the securities listed on the TIF or take exception to the transfer instructions. If there are no exceptions, within three business days following validation, the carrying firm must complete the transfer of the account.

DISSOLVING A LIMITED PARTNERSHIP

When dissolution occurs, the GP must cancel the certificate of limited partnership and settle accounts in the following order: ■Secured lenders ■Other creditors ■Limited partners --First, for their claims to shares of profits --Second, for their claims to a return of contributed capital GPs ——First, for fees and other claims not involving profits ——Second, for a share of profits ——Third, for capital return

Opening vs. Closing

When filling out an order ticket for an option transaction, the representative must indicate whether the trade is an opening or closing transaction. An opening transaction establishes a position, whereas a closing transaction eliminates a position. Furthermore, if an opening transaction involves the sale of an option, the representative must indicate whether it is covered or uncovered. ****Opening Sales & Closing Purchase n shit****

Oversold

When market indices are declining but there are more stocks gaining than losing. (Fewer stocks declining) This results in a market reversal upward

Overbought

When market indices are rising but the number of advancing stocks is outnumbered by declining stocks. (Fewer Stocks rising) This results in a market correction downward

Rollover

When moving IRA from one custodian to another, the client themselves must hold the securities in the interim. They have 60 days to place the funds/ securities with new custodian to avoid 10% IRS penalty.

ACCOUNT AUTHORIZATIONS

When opening a brokerage account, the customer opening the account will have final say on investment decisions unless the customer gives someone else that authority, such as a registered representative. IF RR HAS AUTHORITY ACCOUNT BECOMES DISCRETIONARY

Features of Foreign Currency Options

When purchased, sold or exercised foreign currency options contracts are cash settled in U.S. dollars with no physical delivery of foreign currency.

Breakpoints

When purchasing mutual funds, the investment becomes cheaper as the dollar amount increases. It's illegal to not tell client about break points

The Final Prospectus (Effective, Statutory Prospectus)

When the registration statements for corporate securities becomes effective the issuer amends the preliminary prospectus. The Final Prospectus includes final offering price, and the underwriting spread.

Share Identification

When using the share identification accounting method, the investor keeps track of the cost of each share purchased and uses this information when deciding which shares to liquidate. He then liquidates the shares that provide the desired tax benefits.

COMPETITIVE BIDDING

With competitive bid underwritings, a municipality publishes an invitation to bid. Investment bankers respond in writing to the issuer's attorney or other designated official requesting information on the offering. The bid representing the lowest net interest cost to the issuer is the winner in a competitive bid.

Death of an Account Holder

With regard to individual accounts, once a firm becomes aware of the death of the account owner, the firm must cancel all open orders, mark the account "deceased," and freeze the assets in the account until receiving instructions and the necessary documentation from the executor of the decedent's estate. If the account has a third-party power of attorney, the authorization is revoked.

Index Option Exercise

With regard to settlement, there is one major difference between index options and equity options. The exercise of an index option settles the next business day, whereas the exercise of an equity option settles the regular way (two business days). With regard to trading (i.e., buying or selling), settlement is the next business day for both.

Income Bonds

also known as adjustment bonds, are used when a company is reorganizing and coming out of bankruptcy. Income bonds pay interest only if the corporation has enough income to meet the interest payment and if the BOD declares a payment. Because missed interest payments do not accumulate for future payment, these bonds are not suitable investments for customers seeking income.

Intangible Drilling Costs (IDCs)

Write-offs for the expenses of drilling are usually 100% deductible in the first year of operation. These include costs associated with drilling such as wages, supplies, fuel costs, and insurance.

Correspondence

Written/ electronic communications distributed to 25 or less retail investors in a 30 day period

Maximum Loss (Short Naked Calls)

YOOOOOOO UNLIMITED RISK ON THIS BABY Think about it, you're agreeing to sell a stock that you don't own, who knows what price it will reach when it's called. And guess what, you're going to have to buy it at market price WHICH ENSURES YOU'LL LOOSE YOUR ASS

Options Calculation *Test Topic*

You are likely to see a question or two on option premiums. Be prepared to calculate the time value of an option premium and recognize the features that affect premiums. In calculating the premium, remember to determine intrinsic value by thinking "call up or put down." What's left of the premium is the time value. A likely test question might be: An XYZ Jan 50 put is trading for a premium of five. The current market value of XYZ stock is 55. What is the time value and intrinsic value of the premium? Think "put down." A put has intrinsic value when the market price of the stock is below the SP. In this example, that market price is up, so this option has no intrinsic value. The premium of 5 is all time value. The solution is: intrinsic value = 0, time value = 5.

Currency Risk

You buy a fire ass Turkish bond that pays Turkish Lira's. All is good and the exchange rate makes it worth the money. All of a sudden turkey is in war and your Lira's both held and yet to be paid are worth nothing compared to USD.

Diversifying Holdings (Long Call)

You can buy a bunch of options in different sectors and only exercise the options that are in the money ****This is actual dope af I never thought ab it but if you don't know where the market is going just buy a ton of options instead of equity. The options can expire and you only lose premium. If you purchased straight equity you'd get fukt****

Protection of a Long Position (Short Calls)

You get money for writing options of course, if you have long positions and you write enough options, your premiums received will protect your equities. ****WITH EVER OPTION YOU WRITE YOU TAKE ON MORE RISK THATS WHY YOURE GETTING PAID RETARD****

Maximum Loss (Short Covered Calls)

You have the obligation to sell but its straight bc you already own the stock to sell. The difference between your cost basis on those shares & the strike price is your net gain or loss

Reinvestment Risk

You were thrilled with your 3% bond and really enjoyed the income over the last 30 years. It has matured now and you wanna buy another bond. The best bond you can get currently is 1.5%. This is reinvestment risk.

Zero Coupies *TEST TOPIC*

Zero-coupon bonds, which are purchased at a discount and mature at face value, are a suitable investment for future anticipated expenses, such as college tuition.

Callable Preferred

a company can buy back from investors at a stated price on the call date or any date thereafter. ****The right to call the stock allows the company to replace a relatively high fixed dividend obligation with a lower one should interest rates decline.**** -In return for the call privilege, the corporation usually pays a premium exceeding the stock's par value at the call, such as $103 for a $100 par value stock.

Designated Primary Market Maker

a floor trader responsible for maintaining a two-sided market for a specific product on the CBOE and is the trading firm designated by the exchange to ensure a fair and orderly market—the CBOE's equivalent to a specialist on the NYSE Amex options exchange.

PROXIES

a form of an absentee ballot If you end up going to the shareholders meeting your proxy is cancelled cause you're voting in person If you die your shit gets cancelled If you submit another proxy your old one is cancelled

Quick Asset Ratio (Acid-Test Ratio)

a further stress test on a firms liquidity. Acid Test takes away not only their slow assets but also their inventory. Current Assets-Inventory/ Current Liabilities In the event that funds need to be produced without time for selling inventory this ratio is used

Farm Credit System (FCS)

a national network of lending institutions that provides agricultural financing and credit. The system is a privately owned, government-sponsored enterprise that raises loanable funds through the sale of Farm Credit securities to investors. ****The federal FCS issues discount notes, bonds, and master notes. The maturities range from one day to 30 years. The proceeds from the sale of securities are used to provide farmers with real estate loans, rural home mortgage loans, and crop insurance. Interest paid on these securities is exempt from state and local taxation.****

DOLLAR COST AVERAGING

a person invests identical amounts at regular intervals. This form of investing allows the individual to purchase more shares when prices are low, and fewer shares when prices are high.

MODERN PORTFOLIO THEORY (MPT)

a scientific approach to measuring risk and, by extension, to choosing investments. This nerd ass dude Harry Markowitz made a theory that states a lower volatility portfolio out performs a high vol portfolio always. MPT states that for an account to be considered diversified, the securities selected must have a negative correlation, not positive. If Crude Oil Holdings surge, you should have some airlines stocks that are shitting the bed. <-- So says this theory

BALANCED FUNDS

also known as hybrid funds, invest in stocks for appreciation and bonds for income. In a balanced fund, different types of securities are purchased according to a formula the manager may adjust to reflect market conditions. A balanced fund's portfolio might contain 60% stocks and 40% bonds.

Bond anticipation notes (BANs)

are sold as interim financing that will eventually be converted to long-term funding through a sale of bonds.

Industrial Development Revenue Bonds.

construct facilities or purchase equipment, which is then leased to a corporation. The municipality uses the money from lease payments to pay the principal and interest on the bonds. The ultimate responsibility for the payment of principal and interest rests with the corporation leasing the facility; therefore, the bonds carry the corporation's debt rating.

Tangible Drilling Costs (TDCs)

costs incurred that have salvage value (e.g., storage tanks and wellhead equipment). These costs are not immediately deductible; rather, they are deducted (depreciated) over several years.

cost of goods sold (COGS)

costs of labor, material, and production (including depreciation on assets employed in production) used to create finished goods. **Subtracting COGS from revenues shows the gross operating profit**

Credit Call Spread

created by investors to reduce the risk of a short option position. Again, there is a trade-off; the potential reward of the investor is reduced. The investor who establishes a credit call spread is bearish.

Syndicate Account

created when the issue is awarded. The syndicate manager is responsible for keeping the books and managing the account. All sale proceeds are deposited to the syndicate account, and all expenses are paid out of the account.

Equity-Linked Notes

debt instruments where the final payment at maturity is based on the return of a single stock, a basket of stocks, or an equity index. In the case where the note is based on the return of an index, the security would be known as an index-linked note.

Leveraged Funds

deliver a multiple of the return of the benchmark index they are designated to track. For instance, a 2X leveraged fund would try to deliver two times the return of whatever index it is tracking. With leveraged funds, there are no limits by rule or regulation as to the amount of leverage that could be applied to a portfolio. Currently there are numerous 2X and 3X leveraged funds available to investors. ****LEVER UP PUSSY BOYS****

VARIABLE LIFE INSURANCE

has a fixed, scheduled premium but differs from whole life insurance in that the premiums paid are split; part of the premium is placed in the general assets of the insurance company. ****These general assets are used to guarantee a minimum death benefit.****

Straight(Noncumulative) Preferred Stock

has no special features beyond the stated dividend payment. Missed dividends are not paid to the holder. The year's stated dividend must be paid on straight preferred if any dividend is to be paid to common shareholders.

Variable-rate demand notes

have a fluctuating interest rate and are usually issued with a put option.

BOND FUNDS

have income as their main investment objective. Some funds invest solely in investment-grade corporate bonds. Others, seeking enhanced safety, invest only in government issues. Still others seek to maximize current income by investing in lower-rated (junk) bonds for higher yields.

UNSECURED BONDS

have no specific collateral backing and are classified as either debentures or subordinated debentures.

Mortgage Bonds

have the highest priority among all claims on assets pledged as collateral. Although mortgage bonds, in general, are considered relatively safe, individual bonds are only as secure as the assets that secure them and are rated accordingly.

BLANK-CHECK OR BLIND-POOL HEDGE FUND

hedge funds target blank-check companies to invest in. Blank-check companies, sometimes known as special purpose acquisition companies, carry their own unique risks. Blank-check companies are companies without business operations that raise money through IPOs in order to have their shares publicly traded for the sole purpose of seeking out a business or combination of businesses. When a business is located, they will present proposals to holders of their shares for approval.

Tax Reform Act of 1986

interest on these nonpublic purpose bonds (or private purpose bonds) may be taxable because the act reserves tax exemption for public purposes. Because these bonds are used for a nonpublic purpose, the interest income may be subject to the alternative minimum tax (AMT).

FOREIGN STOCK FUNDS

invest only in the securities of foreign countries (companies that have their principal business activities outside the United States). Long-term capital appreciation is their primary objective, although some funds also seek current income.

UNIT INVESTMENT TRUSTS (UITs)

investment companies, which means they pool money from many investors and invest it based on specific investment goals. once a UIT sets its portfolio, it remains the same for the life of the fund (barring any major corporate events, such as a merger or bankruptcy proceeding) and the term is fixed. ****Basically a mutual fund w/ expiration date. Fixed portfolio or Equity & Debt, automatically cashed out on Maturity****

Variable Annuity

investor assumes the investment risk rather than the insurance company. Because the investor takes on this risk, the product is considered a security. It must be sold with a prospectus by individuals who are both insurance licensed and securities licensed.

Collateral Trust Bonds

issued by corporations that own securities of other companies as investments. A corporation issues bonds secured by a pledge of those securities as collateral.

Preferred Stock

issued with a fixed (stated) rate of return. In the case of the preferred stock, it is a dividend rather than interest that is being paid Most preferred stock is non-voting Preferred stock does not typically have the same growth potential as common stock and therefore is subject to inflation risk. However, preferred stockholders generally have two advantages over common stockholders. ■When the BOD declares dividends, owners of preferred stock must receive their stated dividend in full before common stockholders may be paid a dividend. ■If a corporation goes bankrupt, preferred stockholders have a priority claim over common stockholders on the assets remaining after creditors have been paid. ****Because of these features, preferred stock appeals to investors seeking income and safety.****

Beta (β)

measure of the volatility of a stock or a portfolio related to the volatility of the market in general. To review, if a portfolio has a beta of 1.0, it has the same volatility characteristics as the market in general. In other words, if the market rises by 5%, the portfolio should rise by the same amount. If a portfolio has a beta of 1.2, it is 20% more volatile than the market in general.

AMERICAN DEPOSITARY RECEIPTS (ADRs)

negotiable security instruments that are issued by a domestic (U.S.) bank and trade on the U.S. securities markets. Each ADR represents a specific number of shares in a foreign company held by a custodian, typically a bank in that company's country. ****Make investing in foreign stocks easy by intermediaries Banks****

NET INVESTMENT INCOME (NII)

net investment income = dividends + interest - expenses of the fund

Other Assets

nonphysical properties, such as formulas, brand names, contract rights, and trademarks. Goodwill received on prior deals falls into this

Agency Funds

not considered quite as safe from default risk as U.S. government funds; therefore, the yields on agency security funds will be higher than U.S. government fund yields. ****Shit like Ginnie Mae & Fannie Mae****

Defined benefit plan

promises a specific benefit at retirement that is determined by a formula involving typical retirement age, years of service, and compensation level achieved. ****The amount of the contribution is determined by the plan's trust agreement and uses actuarial calculations involving investment returns, future interest rates, and other matters.****

TREASURY INFLATION PROTECTION SECURITIES (TIPS)

protect investors against purchasing power risk. These notes are issued with a fixed interest rate, but the principal amount is adjusted semiannually by an amount equal to the change in the Consumer Price Index (CPI), the standard measurement of inflation. ****Like a Bond where interest is fixed but prinicpal amount moves to match inflation. Your rate is the same but your coupon payments should grow at the rate of inflation/ CPI****

Financial Statements

provide a fundamental analyst with the information needed to assess that corporation's profitability, liquidity, financial strength (ability of cash flow to meet debt payments), and operating efficiency.

Credit Put Spread

reduce the risk of a short put position. Again, there is a trade-off: the potential reward of the investor is reduced. The investor who establishes a credit put spread is bullish.

Ratio Call Writing

selling more calls than the long stock position covers. This strategy generates additional premium income for the investor, but also entails unlimited risk because of the short uncovered calls.

Municipal Notes

short-term securities that generate funds for a municipality that expects other revenues soon. Usually, municipal notes have less than 12-month maturities, although maturities may range from three months to three years. ****Like a corporate note issued by Government****

SPREADS

simultaneous purchase of one option and sale of another option of the same class. ■A call spread is a long call and a short call. ■A put spread is a long put and a short put.

AGGRESSIVE GROWTH FUNDS

sometimes called performance funds willing to take greater risk to maximize capital appreciation.

Authorized Stock

specific number of shares the company has authorization to issue or sell. This is laid out in the company's original charter. Often, a company sells only a portion of the authorized shares to raise enough capital for its foreseeable needs.

(EQUITY) INCOME FUNDS

stresses current income over growth. The fund's objective may be accomplished by investing in the stocks of companies with long histories of dividend payments, such as utility company stocks, blue-chip stocks, and preferred stocks. These are managed for value, not growth. ****Held mainly for dividends****

INCOME STATEMENT

summarizes a company's revenues (sales) and expenses for a fiscal period, usually quarterly, year to date, or the full year. **Also called P&L (Profit and Loss) statements because it shows exactly that**

1035 EXCHANGE

tax-free exchange between like contracts. ****The IRS allows annuity and life insurance policyholders to exchange their policies without tax liability.****

Odd-Lot Theory

technical analysis theory based on the assumption that the small individual investor trading odd lots is usually wrong. Therefore, if odd lot sales are up and small investors are selling a stock, it is probably a good time to buy. Vice versa, when odd lot buys are up the odd lot theory would indicate a good time to sell. ****Assuming that retail traders are shit and to trade against them****

Market Breadth

the number of issues closing up or down on a specific day analyze the number of companies advancing relative to those declining. Positive market breadth occurs when more stocks are advancing than are declining and suggests that the bulls are in control of the market's momentum. Conversely, a disproportional number of declining securities is used to confirm bearish momentum.

Trading Volume

the number of shares of a security that are simultaneously bought and sold during a period **If volume has been nonexistent on a stock and then it suddenly picks up, that should be considered an indicator**

Convertible Preferred

the owner can exchange each preferred share for shares of common stock. The price at which the investor can convert is a preset amount and is noted on the stock certificate. ****Because the value of a convertible preferred stock is linked to the value of the issuer's common stock, the convertible preferred's price fluctuates in line with the common.****

Narrow-based indexes

track the movement of market segments in a specific industry, such as technology or pharmaceuticals.

Collateralized Mortgage Obligations (CMOs)

type of mortgage-backed security that contains a pool of mortgages bundled together and sold as an investment. Organized by maturity and level of risk, CMOs receive cash flows as borrowers repay the mortgages that act as collateral on these securities. In turn, CMOs distribute principal and interest payments to their investors based on predetermined rules and agreements.

Commercial Paper (Prime Paper)

unsecured commercial paper, or promissory notes, to raise cash to finance accounts receivable and seasonal inventory overages. ****Issued at discount to par, 90 day maturities****

Debit Call Spread

used by investors to reduce the cost of a long option position There is, however, a trade-off, because the potential reward of the investor is also reduced. The investor who establishes a debit call spread is bullish.

MONEY MARKET INSTRUMENTS

■Banker's Acceptance (BA) ■Commercial Paper (Prime Paper) ■Negotiable CDs (Jumbo CDs)

DISADVANTAGES OF EXCHANGE-TRADED FUNDS (ETFs)

■Commissions—The purchase or sale of ETF shares is a commissionable transaction. The commissions paid can erode the low expense advantage of ETFs. This would have the greatest impact when trading in and out of ETF shares frequently or when investing smaller sums of money. ■Overtrading—Given the ability to trade in and out of ETFs easily, the temptation to do so is possible. Excessive trading can eliminate the advantages associated with investing in a diversified portfolio and add to overall commissions being paid by the investor, further eroding any of the other expense and operating advantages associated with ETFs

Types of Spreads

■Credit Spread ■Debit Spread

Types of Industries

■Defensive ■Cyclical ■Countercyclical ■Growth

Types of DPP income

■Earned income includes salary, bonuses, and income derived from active participation in a trade or business. Earned income is sometimes known as active income. ■Passive income and losses come from rental property, DPPs, and enterprises (regardless of business structure) in which an individual is not actively involved. For the general partner, income from DPPs is earned income; for the limited partners, such income is passive. Passive income is netted against passive losses to determine net taxable income. Passive losses may be used to offset passive income only. ■Portfolio income includes dividends, interest, and net capital gains derived from the sale of securities. No matter what the source of the income, it is taxed during the year in which it is received.

REVENUE BOND ANALYSIS

■Economic justification: the facility being built should be able to generate revenues. ■Competing facilities: a facility should not be placed where better alternatives are easily available. ■Sources of revenue: the sources should be dependable. ■Call provisions: with callable bonds, the higher the call premium, the more attractive a bond is to an investor. ■Flow of funds: revenues generated must be sufficient to pay all of the facility's operating expenses and to meet debt service obligation.

CHOICES AT EXPIRATION

■Exercise the Option ■Let the Option Expire ■Sell the Option Contract Before the Expiration Date

Types of Revenue Bonds

■Industrial Development Revenue Bonds. ■Lease-Rental Bonds. ■Certificates of Participation. ■Special Tax Bonds. ■Special Assessment Bonds (or Special District Bonds). ■New Housing Authority Bonds. ■Moral Obligation Bonds.

Components of Capital Structure

■Long-term debt ■Capital stock (common and preferred) ■Capital in excess of par ■Retained earnings (earned surplus)

FINRA Risk Profiles (TEST TOPIC)

■Low risk—conservative ■Some risk—moderate ■More than average risk—moderately aggressive ■High risk—aggressive

MUNICIPAL DEBT RATIOS

■Net debt to assessed valuation: a ratio of 5% ($5,000 of debt per $100,000 of assessed property value) is considered reasonable for a municipality. ■Net debt to estimated valuation: assessed valuation varies among municipalities, so most analysts prefer to use estimated valuation of property. ■Taxes per person or per capita: this ratio equals the city's tax income divided by the city population; it is used to evaluate the population's tax burden. ■Debt per capita: larger cities can assume more debt per capita because their tax bases are more diversified. ■Debt trend: this number indicates whether the ratios are rising or falling. Bonds can be long-term investments, so it is important to anticipate the community's future financial position. ■Collection ratio: this ratio equals the taxes collected divided by the taxes assessed; it can help detect deteriorating credit conditions. ■Coverage ratio: this ratio shows how many times annual revenues will cover debt service. A coverage of 2:1 is considered adequate for a typical municipal revenue bond. For utility revenue bonds (i.e., sewer, water, and electricity), a coverage of 5:4 (125%) of fixed charges is considered adequate.

REITS *Test Topic*

■Not a limited partnership ■Not an investment company Pass-through income, not losses 75% of total investment assets in real estate 75% of gross income from rents or mortgage interest Must distribute 90% or more of income to shareholders to avoid taxation as a corporation Trade on exchanges or OTC Dividends received from REITS are taxed as ordinary income

Flow of Funds in a Net Revenue Pledge

■Operations and maintenance—used to pay current operating and maintenance expenses; remaining funds are called net revenues ■Debt service account—used to pay the interest and principal maturing in the current year and serves as a sinking fund for term issues ■Debt service reserve fund—used to hold enough money to pay one year's debt service ■Reserve maintenance fund—used to supplement the general maintenance fund ■Renewal and replacement fund—used to create reserve funds for major renewal projects and equipment replacements ■Surplus (sinking) fund—used for a variety of purposes, such as redeeming bonds or paying for improvements

Employee Retirement Income Security Act (ERISA)

■Participation: This identifies eligibility rules for employees. All employees must be covered if they are 21 years or older and have performed one year of full-time service, which ERISA defines as 1,000 hours or more. ■Funding: Funds contributed to the plan must be segregated from other corporate assets. Plan trustees must administer and invest the assets prudently and in the best interest of all participants. IRS contribution limits must be observed. ■Vesting: Vesting defines when an employer contribution to a plan becomes the employee's money, such as an employer-matching contribution to a 401(k) plan. ERISA limits how long the vesting schedule can last before the employee is fully vested. Note that an employee is always fully vested in the employee's own contributions to a plan. ■Communication: The plan document must be in writing, and employees must be given annual statements of account and updates of plan benefits. ■Nondiscrimination: All eligible employees must be treated impartially through a uniformly applied formula. ■Beneficiaries: Beneficiaries must be named to receive an employee's benefits at death.

ADVANTAGES OF REAL ESTATE INVESTMENT TRUSTS (REITs)

■REITs allow investors the opportunity to invest in real estate without incurring the degree of liquidity risk historically associated with real estate because REITs trade on exchanges and OTC. ■REITs can provide some hedge to price movements in other equity markets. While it isn't always the case, real estate prices historically have had a negative correlation to stock prices. ■REITs provide a reasonable expectation of income from dividends and capital appreciation due to the appreciation of the assets the trust holds.

General Obligation Issues

■Sources of Funds ■Statutory Debt Limits

MUTUAL FUND CHARACTERISTICS AND CATEGORIES

■Stock funds invest in stocks ■Bond funds invest in bonds ■Balanced funds invest in a combination of stocks and bonds ■Money market funds invest in very short-term investments and are sometimes described as cash equivalents

Asset Classes

■Stock, with sub-classes based on market capitalization, value versus growth, and foreign equity ■Bonds, with sub-classes based on maturity (intermediate versus long-term), and issuer (Treasury versus corporate versus non-U.S. issuers) ■Cash, focusing mainly on the standard risk-free investment, the 90‑day Treasury bill, but also including other short-term money market instruments

INVESTMENT RISKS

■Systematic - Can't diversify away/ Affects all ■Unsystematic Risk - Can diversify/ only affects certain securities, not whole market

Maturity Structures (Munis)

■Term Maturity ■Serial Maturity ■Balloon Maturity

REQUIRED BEGINNING DATE

■The first year after the calendar year in which she reaches age 70½. ****RMD's START @ 70.5yrs. Required Minimum Distribution****

SUITABILITY OF VL INSURANCE

■There must be a life insurance need. ■The applicant must be comfortable with the separate account and the fact that the cash value is not guaranteed. ■The applicant must understand the variable death benefit feature. ■A prospectus must be delivered prior to or at the time of solicitation.

Official Notice of Sale Must Include

■date, time, and place of sale; ■name and description of issuer; ■type of bond; ■bidding restrictions (usually requiring a sealed bid); ■interest payment dates; ■dated date (interest accrual date) and first coupon payment date; ■maturity structure; ■call provisions (if any); ■denominations and registration provisions; ■expenses to be borne by purchaser or issuer; ■amount of good-faith deposit that must accompany bid; ■paying agent or trustee; Unit 6 Municipal Securities 335 ■name of the firm (the bond counsel) providing the legal opinion; ■details of delivery; ■issuer's right of rejection of all bids; ■criteria for awarding the issue; and ■issuer's obligation to prepare the final OS and deliver copies to the successful bidder.

Tombstone Ads

Bare-bones, minimal information, may be placed before or after effective date of security.

MARGIN ACCOUNT

Can purchase securities with cash as well as credit (loaned money) in the account. Can't use margin accounts to purchase: ■Mutual Funds ■Retirement Accounts ■Custodial Account for Minors

Firm Commitment Underwriting

Most common type of underwriting contract. IB commits to by all shares regardless of if they are sold or not.

Institutional Communication

any written communication that is distributed or made available to institutional investors but does not include a member firms' internal communications

Exempt Issuers & Securities

1933 cleared the following Issuers from registering securities •The U.S Government •U.S Municipalities and Territories •Non profit, religious, educational, charities •Banks, savings, and loans •Public Utilities 1933 cleared the following securities from being registered •Commercial Paper - Matures <270 days •Banker's Acceptance - Matures <270 days •Securities Acquired in private placement (Restricted)

Mini-Max Offering

A best efforts underwriting setting a floor or minimum, which is the least amount the issuer needs to raise in order to move forward with the underwriting and a ceiling or maximum on the dollar amount of securities the issuer is willing to sell. They gotta hit the floor (mini) to keep the job They can sell to the ceiling set by the issuer

CASH ACCOUNT

A cash account is the most basic investment account. Anyone eligible to open an investment account can open a cash account. In a cash account, a customer pays in full for any securities purchased. ****Certain accounts must be opened as cash accounts, such as personal retirement accounts (individual retirement accounts and tax-sheltered annuities), corporate retirement accounts, and custodial accounts (Uniform Gift to Minors Act and Uniform Transfers to Minors Act accounts)****

Statement of Additional Information (SAI)

A final prospectus should contain all info the an investor would need, but in the event that they require more information they can request an SAI. SAI's must be provided to the investor at no charge. SAI's can be retrieved from: ■The Investment Company ■Brokers who sell those shares ■The SEC

Summary Prospectus (SEC Rule 498)

A mutual fund can provide a summary prospectus to investors that may include an application investors can use to buy the funds shares

RULE 144A

Allows non registered foreign and domestic securities to be sold to certain institutional investors in the US without holding period requirements. The purchaser must be a Qualified Institutional Buyer (QIB) A QIB must have a minimum of $100 million invested on a discretionary basis and cannot have any affiliation with any entities selling the issue

Private Placement Stock

Also called Lettered Stock Called so because investors in private placements must sign a letter stating the he will hold the stock for investment purposes only.

Electronic Bulletin Board

Also considered retail communications, but a registered rep using instant messaging doesn't need to identify as registered.

Community Property

Community property is a marital property classification recognized by some—but not all—states. In these jurisdictions, most property acquired during the marriage is considered to be owned jointly by both spouses and would be divided at the time of divorce, annulment, or death.

Dividend Exclusion Rule

Dividends paid from one corporation to another are 50% exempt from taxation. A corporation that receives dividends on stocks of other domestic corporations, therefore, pays taxes on only 50% of the dividends received. This provision encourages corporations to invest in common and preferred stock of other U.S. corporations.

Selling Group Agreement

Document signed by selling groups and produced by the employing investment bank •Selling Group agrees to listen to IB •The amount of shares each selling group is allotted •When and how payments for shares land •Limited Liability for the selling group

Stabilizing Price

During IPO, if demand is low and PPS is falling, the IB will bid for shares in open market. The bids are priced at or below POP

Selling Group

Firms that assist investment banks in allocating the order book and selling all stock in new issue. The investment banks hold the liability but the selling groups do not. Literally just helping them sell shit

Sole Proprietorship

This is the simplest form of business organization and is treated like an individual account. In a sole proprietorship, all income (or loss) is that of the individual. In fact, one of the risks of operating in this fashion is that all the owner's assets are liable for the debts of the business—you can lose everything. ****Same unlimited liability with investments as normal business operations****

Syndicate Penalty Bid

If a syndicate attempts to stabilize a stock's price after first sale, the syndicate manager will levy a syndicate penalty bid against those members.

Trusted Contact Person (Rules 2165 and 4512)

If the person opening the account is age 65 or older, FINRA requires members to make reasonable efforts to obtain, for noninstitutional customers, the name of and contact information for a trusted contact person age 18 or older who may be contacted about the customer's account. ****In case this your dude dies you can call someone to take the drivers seat****

NEW ACCOUNT FORM

Knowing your customer begins with the new account form. The SEC requires that brokerage firms attempt to create a record for each account with an individual customer that includes the following information: ■Customer name ■Tax identification number (e.g., Social Security number) ■Address ■Is the client of legal age? ■Telephone number ■Drivers license, passport information, or information from other government-issued identification ■Employment status and occupation ■Whether the customer is employed by a brokerage firm ■Annual income ■Net worth ■Account investment objectives

Municipal Securities Issuer Intent to Sell Bonds

Official Notice of Sale is published in the Daily Bond Buyer. This is how municipalities obtain underwriters for municipal offerings

Opening a Fiduciary Account

Opening a fiduciary account may require a court certification of the individual's appointment and authority. An account for a trustee must include a trust agreement detailing the limitations placed on the fiduciary. No documentation of custodial rights or court certification is required for an individual acting as the custodian for an UGMA or UTMA account. The registered representative for a fiduciary account must be aware of the following rules. ■Proper authorization must be given—the necessary court documents must be filed with and verified by the BD. ■Speculative transactions are generally not permitted. ■Margin and option accounts are only permitted if authorized by the legal documents establishing the fiduciary accounts. ■The prudent investor rule requires fiduciaries to make wise and safe investments. ■Many states publish a legal list of securities approved for fiduciary accounts. ■A fiduciary may not share in an account's profits but may charge a reasonable fee for services.

RULE 144

Rule 144 regulates the sale of control and restricted securities, stipulating the holding period, quantity limitations, manner of sale, and filing procedures. Control securities are those owned by directors, officers, or persons who own or control more than 10% of the issuer's voting stock.

SEC Disclaimer

SEC Disclaimer. The SEC reviews the prospectus to ensure that it contains the necessary material facts, but it does not guarantee the disclosure's accuracy. Furthermore, the SEC does not approve the issue but simply clears it for distribution. Implying that the SEC has approved the issue violates federal law. Finally, the SEC does not pass judgment on the issue's investment merit. "These securities have not been approved or disapproved by the SEC or by any State Securities Commission nor has the SEC or any State Securities Commission passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense."

TIC

TIC ownership provides that a deceased tenant's fractional interest in the account be retained by that tenant's estate and not passed to the surviving tenant(s). If one account owner dies or is declared incompetent, all pending transactions and outstanding orders must be canceled immediately. ****If a TIC agreement provides for a 60% ownership interest by one owner and 40% ownership interest by the other, that fraction of the account would pass into the deceased owner's estate upon death. The TIC agreement may be used by more than two individuals.****

Regulation D: Private Placements

The SEC does not require registration of an offering if it is privately placed with: ■accredited investors that do not need SEC protection or ■a maximum of 35 individual (non-accredited) investors.

TRUST INDENTURE ACT OF 1939

The Trust Indenture Act of 1939 applies to corporate bonds (nonexempt) with the following characteristics: ■Issue size of more than $50 million within 12 months ■Maturity of nine months or more ■Offered interstate **The test might ask about the definition of a trust indenture. The best answer defines the trust indenture as a series of promises between the issuer and the trustee for the benefit of the bondholders.** Essentially, big bond issuers have to appoint a trustee who must act internally in the best interest of the bond holders

Updating Client Information

The completed form must be sent to the customer within 30 days. After that, account information must be updated no less frequently than once every three years. Anytime the account is amended, an updated form must be sent to the customer within 30 days.

Underwriting Compensation

The price at which underwriters buy stock from issuers always differs from the price at which the offers sell to the public. Issuer gets money from IB <-- Underwriting Proceeds IB gets money from public sales <-- Public Offering Price The difference between UP & POP is the underwriting spread

Civil Liabilities

The seller of any security being sold by prospectus is liable to purchasers if the registration statement or prospectus makes any false claims.

TYPES OF ACCOUNTS

The two most common accounts offered by BDs to their customers are: ■cash ■margin accounts.

Regulation S-P (Privacy Notices)

This regulation was enacted by the SEC to protect the privacy of customer information. In particular, the regulation deals with nonpublic personal information. Examples of nonpublic personal information include a customer's Social Security number, account balances, transaction history, and any information collected through internet cookies. Your firm must provide a privacy notice describing its privacy policies to customers whenever a new account is opened, and annually thereafter.

RULE 147: INTRASTATE OFFERINGS

Under Rule 147, offerings that take place entirely in one state are exempt from registration when: ■the issuer has its principal office and receives at least 80% of its income in the state; ■at least 80% of the issuer's assets are located within the state; ■at least 80% of the offering proceeds are used within the state; ■a majority of the issuers' employees are based within the state; and ■all purchasers are residents of the state.

Fiduciary and Custodial Accounts

When securities are placed in a fiduciary, or custodial, account, a person other than the owner initiates trades. The most familiar example of a fiduciary account is a trust account. Money or securities are placed in trust for one person, often a minor, but someone else manages the account. The manager or trustee is a fiduciary.

REGULATION A+: SMALL AND MEDIUM OFFERINGS

With the passage of the Jumpstart Our Business Startups Act, a capital formation scheme was called for that would further ease the requirements for small- and medium-sized companies to raise capital. Previously known as Regulation A, the new rule is Regulation A+. Regulation A+ provides two offering tiers for small- and medium-sized companies that will allow the companies to raise capital in amounts substantially more than the $5 million previously allowed under Regulation A. ■Tier 1: Securities offerings up to $20 million in a 12-month period will be allowed. Of the $20 million, no more than $6 million can be sold on behalf of existing selling shareholders. The offering would be subject to a coordinated review by individual states and the SEC. ■Tier 2: Securities offerings up to $50 million in a 12-month period will be allowed. Of the $50 million, no more than $15 million can be sold on behalf of existing selling shareholders. These offerings are subject to SEC review only and none at the state level. Tier 2 offerings are still subject to rigorous disclosure requirements to the SEC including audited financial statements, annual, semiannual and current reports.

Retail Communication

any written/ electronic communication that is distributed to more than 25 retails investors within a 30 day period. (Advertising and Sales Literature)

Bond Mutual Fund Volatility Rating

rating related to the sensitivity of the net asset value of a portfolio of an open ended managed investment company that invests in debt securities to changes in market condition

All or None (AON) Underwriting

the issuing corporation has determined that it wants an agreement outlining that the underwriter must either sell all of the shares or cancel the underwriting. Because it hangs in the wind, any funds collected from the sale of securities must be held in escrow until the underwriting finishes or the underwriting is cancelled.

Spinning

the practice of allocating highly sought after IPO shares to individuals who are in a position to direct securities business to the firm. ****This is why portfolio managers are categorized as restricted persons.****

JTWROS vs. TIC

■JTWROS—all parties have an undivided interest in the account ■Tenants in common (TIC)—each party must specify a percentage interest in the account

Names/ Terms for Private Placement Stock

■Restricted (because it must be held for a six-month period) ■Unregistered (no registration statement on file with the SEC) ■Letter stock (investor agreed to terms by signing an investment letter) ■Legend stock (bear a restrictive legend on the certificate)

The summary must provide specific information in a particular sequence

■Risk/return summary: investments, risks, and performance ■Risk/return summary: fee table ■Investment objectives, principal investment strategies, related risks, and disclosure of portfolio holdings ■Management, organization, and capital structure ■Shareholder information ■Distribution arrangements ■Financial highlights information

Three basic steps apply at the death of a customer:

■cancel open orders; ■freeze the account (mark it deceased); and ■await instructions from the executor of the estate.

Corporate Accounts

■the business's legal right to open an investment account, ■an indication of any limitations that the owners, the stockholders, a court, or any other entity has placed on the securities in which the business can invest, and ■who will represent the business in transactions involving the account.