SIE Exam

t/f

1) broker check provides info on an RR background/disciplinary history (T) 2) expungement is process of removing complaints from RR history (T) 3) an investor brochure describes process by which FINRA handles complaints against individual (F) (this is an MSRB requirement and talks about how customers can file complaints/go to arbitrage) 4) IFNRA requires customer complaints to be retained for 4 years

averages/indexes (narrow vs broad based)

how we talk about how someone's portfolio is looking -investment returns are often compared against a benchmark of a group of securities -narrows based indexes: follows a specific sector (not concerned with the number of stocks) -broad based: follows a general market like S&P and Dow Jones (also not concerned with the number of stocks)

issued shares

number of shares that are actually issued/have been sold by the corp

tracking performance

-like grades, your portfolio is looking at how you measure up to your peers -measure porfolio against benchmark, for example if you have a large cap portfolio you may be measuring/comparing to S&P, so if S&P is up 10% and you are up 15% you are beating the benchmark per say

broker-dealer departments/structure of firms (5)

1) investment banking 2) research 3) sales/private client 4) trading 5) operations

u4, u5, u6

1) u4: predispute arbitration clause, business history of associated person 2) u5= reason for RR term 3) u6= arbitration rewards, disciplinary action against RR/firm

listed securities

equity securities that meet standars for trading on a national exchange (NYSE and NASDAQ)

shareholders have limitd liability

meaning they are not held responsible for corp debts, and are a separate person under the law. the worst they can incur is losing their initial investment

form u6

used to report disciplinary actions against the firm/rr and final arbitration awards/rulings against RR/firms= how disciplinary action gets attached to your record

retail investors

(any investor that is not an inst. advisor) regular individuals with regular accounts buying stock and bonds from broker-dealers with limited assets/income

exempt securities=ways around registration with 33 act

*** important to remember that they are still subject to antifraud provisions of the 33 act (no one is exempt from this)....only exempt from registration requirements***** 1) there are exempt list of securities no matter how they are issued 2) there are exempt transactions (private placement)=way it's sold not what is sold 1) us government/agency securities, municipal securities/securities issued by banks or non profit organizations (have their own registrations already, no need to double up), short term corporate debt (maturities can't except 270 days), and securities issued by small business investment companies 2) exempt transactions:

written supervisory procedures

- FINRA wants to see these exist to ensure proper rules for handling client accounts, they must be established, maintained, and enforced -they include: clear identification of a persons supervisory responsibilities/date assigned (date they become supervisors), procedures for each business line/applicable securities laws for which each supervisor is responsible, approve customer accounts/review periodically to detect violations, verify good character and qualifications and experience of all persons being certified for registration/ monitor good standing on regular basis -if rules were broken, 1st person FINRA asks is supervisor in that area=who is overseeing this/who is responsible for RR activity=can have penalty for not supervising properly -each RR is assigned to supervisor/principal

bond yield fills in the blanks

1) bonds ny is = _____ 2) to calcluate bonds CY, an investor must use its ______ int. payments dollar value 3) to calc bonds CY, the ____ of the bond is used not the investors _______ 4) a bonds ytm is = _____ or ______ 5) 1.2% is = _____ basis points 6) if interest rates increase, bond yields _____ while bond prices _____ 1) coupon rate 2) annual interest 3) current market price, purchase price 4) basis or total yield 5) 120 6) increase, decrease

t/f

1) book entry requires delivery of physical shares (F) 2) a stock power can be used in lieu of a signed cert (T) 3) stock transactions must be delivered in multiples of 100 shares (T) 4) restricted securities can be used for good delivery (F)

redeeming bonds prior to maturity (2)

1) call provisions: 2)convertible bonds

who B/D charges for their services? (2)

1) charging issuers: member firms charge issuers for forwarding materials to beneficial owners, rates are subject to SEC rules 2) charge customers: for safekeeping of securities, cannot discriminate between customers, services includes safekeeping of securities, collection of dividends/interest, and exchange and transfer of securities **cannot charge them for forwarding proxies bc they're already charging the issuers for this

other types of corp bonds (4 types)

1) income bonds: issued by company coming out of bankruptcy = reorganization. the interest is payable only if income is sufficient enough. Therefore they promise to pay back interest but only interest if there is enough income to do so 2) euro dollar: issued outside US but pay interest/principal in U.S $. avoid SEC registration 3) yankee bonds: allow foreign entities to sell in US=must be registered in US 4) eurobonds= bonds sold in country that is different than currency paying i-rate/principal (eurodollar is an example) so the issuer/currency/market may all be different

what is required on order ticket t/f

1) indicate if discretion was not exercised for orders in discretionary account (T) 2) trade recommended by RR and accepted by customer can be marked unsolicited (F) 3) sale of securities that are not owned by customer is documented as being sold short (T) 4) all sales of options must be done in margin account (F) only uncovered must

margin ex

1) indicates that broker dealer is permitted to use securities in margin account to secure a loan (hypothecation) 2) discloses the i-rate, how risk is computed, when charged (credit agreement) 3) states that securities can be sold from the account to meet a margin call (margin disclosure document) 4) states that B/D is permitted to lend securities in margin account to others (loan consent agreement)

fill in the blank ex for MF

1) individual ownership in specific mutual fund is represented by (common stock) shares (from ex above, where you cannot own more than 10% of companies voting rights) 2) _____ provides an investor with the abilityto invest a small amount and obtain an interest in a large number of securities (diversification) 3) a diversifiied portfolio cannot invest more than ____ in any one comany and cannot control any more than ____ of any one companys voting stock (5%, 10%) 4) for a diversified fund, no more than _____ of funds assests must be diversified (75) 5) _______ must preceded or accompany any solicitation of mutual fund shares (prospectus)

two types of ETFS (leveraged vs inverse)

1) inverse ETF 2) leveraged 1) inverse ETF: negative correlation to stock portfolio. so when market goes up for ex, your etf goes down (if index falls by 2%, ETF rises by 2%)... you can bet on either side. 2) leveraged: you get multiplier of market performance, can come in inverse forms as well, you get 2x or 3x of the market effect... this is an overall more aggressive vehicle **both portfolios reset daily, they are designed for short term trading as they take advantage of intraday swings/change an index (unlike most packaged products). so if you have a strong indication market will go up or down in the next couple of days, you may want to buy into them but again this is risky

methods issuers use to raise capital

1) issue debt securities (bonds) and 2) issues equity securities (stocks)

customer statements/holding of mail

-acct statements: send by b/d at least quarterly and if activity within the month you get monthly statement as well - holding client mail, firm must receive written customer instructions to hold mail. instructions must include time period during which mail is to be held, and if this request exceeds 3 consecutive months, customer instructions must include valid reason -even if client is away for 6 months, must still check in at reasonable intervals to see if they still apply

municipal bonds - general obligation (ad valorem tax)

-issued by state, city, town, schools, for GENERAL PURPOSE for wide array of needs, backed BY FULL FAITH CREDIT AND TAX abilities of the municipalities -the sources of debt service=full faith tax/credit opportunties of muni (-sales/income taxes at state level) and at local level of government they collect money with ad valorem tax=based on assessed value (such as property taxes) -requires voter approval -higher credit rating thus lower yield -lower yield -subject to debt limitation = max debt muni can take on (ONLY applicable here bc it is backed by taxes)

municipal bonds - revenue bonds

=self supporting debt bc it is backed by the revenue produced by the facility (pay toll to use road or bridge for ex) -NOT backed by full faith credit/taxing abilities but instead by specific revenue producing facilities -airports, sports stadium (payment for entrance/user fees) -if this revenue is not enough then --> default -more risk than GO -DO not require voter approval since not backed by taxes *** usually will have feasibility study which is conducted to determine the costs/revenue capacities of a project*** -higher yield thus more risk -NOT subject to debt limitation ***many different types of these, see next card**

broker dealer = brokerage firm (2 capacities)

2 capacities 1) broker= (ABC - agency, broker, commission)engages in agency transactions in security accounts of others. they match up buys and sells and earn a commission for their work (like a real estate broker, acting on behalf of customers to make commission). no risk to firm, they find party willing to take other side of trade 2) dealer= (PDM - principal, dealer, markup/markdown) firms buying and selling securities for its own accounts. buy securities from clients and hold them in inventory and allow clients to buy from them. like a car dealer... buys for its inventory and sells from its inventory and can mark up and down accordingly. acts as principal and can take other side of the trade, MARK UP OR MARK DOWN -risk & Inventory

account registrations 1/6 - individual

-account is opened for one person, they are only one who can provide instructions unless third party auth/POA has been granted -numbered or nominee accounts are permitted = operations knows all of the client info but internally the account is associated with a number/code as to keep their info private to other employees -CIP=customer identification program requires firms to maintain records of beneficial owners (so some people, those in ops have to know all of this person's info)

municipal bonds (2 types) and their issuers (3 types)

issued by 1) states, political subdivisions, town, counties 2) public agencies for transport, water, etc 3) territories = puerto rico, guam, U.S virgin islands, --> these are TRIPLE TAX FREE two types: 1) general obligation 2) revenue bonds

derivative securites

investments that track the value of common stock and allow the investor to purchase the security at a specified price per share regardless of what price the stock it at.

restricted shares specific to IPO (lock-up agreements and legends)

lock up agreements=how much time that pre-IPO investors must wait before selling their shares after the company has gone public (usually 6 months) this prevents those who initially funded the company from immediately profiting once it goes public -also serves to limit the supply of shares sold in the market -cannot be sold until legend is removed

purpose of securities industry

matching investors with money to issuers that need that money to finance

redeeming MF shares (redemption process and redemption fee)

means liquidation of sale redemption process: MF investor may redeem shares and receive shares next calculated NAV (MINUS any contingent deferred sales charges or redemption fees if applicable) -funds are required to send investors the payment for these shares within 7 calendar days of receinv the request (MF Liqudation is not a trade... but a redemption) redemption fee: depends on how long you have helpd the fund... used to prevent in and out trading which can cause the portfolio manager to sell out of positions they may not want to

stockholders

no maturity date, they are part owners of the company hence (equity) and no guaranteed int. payments -if company prospers, the shareholders can expect to share in its profits in the form of cash or stock distributions (dividends) and their shares also increase in value *** if company fails they are more likely than other investors to lose entire investments since bondholders have higher claim in assets and are paid out first -dividends -potential capital appreciation

preferred stock

no voting rights, bought bc of dividends (paid before common holders), designed to provide returns similar to bonds, DIVIDENDS ARE PAID QUARTERLY

market cap = market capitalization

# of outstanding shares * market value per share

summary U.S treasuries

10+ maturity = t bill taxed at federal level: t bill, note, bond sold at weekly auction: t bill discounted security: T-bill, STRIP 2-10 yr maturity: t notes book entry issuance: t bill, note, bond i-reate paid semi annually: t bond, t note

quotation systems

OTCBB, OTC Pink Markets - they check which firms trade in certain stocks

unissued shares

any shares that haven't been sold or distributed

FINRA rule 2261 - disclosure of financial condition

if customer requests, a member firm must make available their most recent balance sheet

bond prices and yields: an inverse relationship (how to calculate bond yield -> 3 dif ways)

if interest rates rise then the value (price) of existing bonds will fall since the demand for them will fall since they offer lower rates, conversely if interest rates fall then the value of existing bonds will rise since theyre worth more than a NEW bond issued with lower coupon rate. -bond yield 1) nominal yield: coupon 2) current yield: (annual interest in $/ current market price) 3) yield to maturity: (effective return)

derivative securities - warrants

like rights, warrants allow a common stock owner to be able to buy the stock at a specified price (subscription price) in the future -unlike stock rights, warrants typically have a maturity that is set for years in the future/some have no end -unlike stock rights, warrants subscription price is typically higher than the current market price of the stock -typically include warrants with new issues of stocks to add an incentive -the value arises when the stock's value increases beyond the warrant price bc then the investor could sell and make a profit

ex buy stop

protect profit (already sold something, sold short, but either way you have realized profit) -short position so you enter buy stop at 30 -trigger=at or above 30 -investor is short 1000 @ 26 -places buy 1000 DEG at 30 stop -today trades are 29.75, 29.6, 29.7, 30.12, 30.15 -trigger=30.12 -execution=30.15

two derivative types

1) preemtive right 2) warrants

custodians (other important entities in the market)

hold assets in physical form not book entry

t/f i-rate/stock classification

1) Fed reserve board sets fed funds rate (F) 2) value stock is one that is often overlooked by investors (T) 3) defensive stocks tend to perform well during periods of contracts (T) 4) micro cap is less risky than small cap (F)

return on stocks T/F

1) stock dividends change the overall value of a portfolio - F 2) cost basis of shares is reduced after a stock divident - T 3) stock dividend is taxable income - F 4) if a cash dividend remains the same the CY on the stock will increase after the stock dividend is paid. T bc with stock dividend the price goes down... so you are dividing the annual dividend by a smaller number. also we know that it is the same amount of dividends but there are more shares

t/f

1) telemarking laws can only be made from 9 am to 8pm, F 2) free credit balance represent customer proceeds that haven't been withdrawn/invested (T) 3) fidelity bond protects customers in event b/d goes through bankruptcy (F, SIPIC does this) 4) business cont. plan is not required to be filed with FINRA unless request (T)

associated persons

Any person associated with a FINRA member firm who intends to engage in the investment banking or securities business must be registered with FINRA as an associated person. Anyone applying for registration as an associated person must be sponsored by a member firm. -if simply doing clerical work then no need to be registered

FINRA - conduct rules

cover interactions between clients and firms re compensation, communications, sales practice violations -one of largest components -governs interactions between firms/customers

traders

do not keep any inventory, executed trades for the firm/client

debt service

payment of i-rate/principal

Taxation - Traditional IRA

- Annual contributions are tax deductible - subject to limits - Investment earnings are tax deferred but are taxable as ordinary income - Distributions are taxable

compensation rules and forgery

- firms/RR can't pay compensation to any individual or firm who is not FINRA registared (includes referral fees, retiring representative can still receive comissions on existing accounts if bona fide contract is created) - forgery, cannot sign for someone else unless you are POA--> can lead to criminal prosecution

form u5

- if registration is termed, u5 must be filed within 30 days = inactive registration - copy provided to RR since includes reason for term - changes to u5 must be made within 30 days -FINRA must be notified of written complain received by b/d even after rep leaves the firm - requal is required if registration is termed for more than 2 years= need to retake exams

account registrations 6/7 - corporate accounts

-2 ways: cash and margin -need corp resolution --> who is authorized to buy/sell -to open option/margin account you need to see corporate charter (has bylaws) to see if they are permitted to be opening this kind of account

regulation (4 tiers)

1) federal 2) state 3) SRO, self regulatory rules and regulations 4) firm specific (in house)

t/f LP

1) partnerships may require LPs to deposit additional funds (T) 2) investors are not required to receive info regarding risk of investments (F) 3) RR can use discretion to purchase LP for clients (F) 4) customers must provide RRs with written approval to purchase LPS (T)

3 reasons why corp would buy back their own stock

1) so there are less outstanding shares 2) increase the market price of the security (rule 10b has rules around this) 3) buy back to give to employees in the form of stock option plans

par value

=$1000= principal=what issuer will pay investor at maturity along with last interest payment. If the investor bought premium or discount bond, they still only get the par value back. also what i-rate is based on.

stock classification: defensive stocks

associated with companies that are resistant to a recession including service related industries (utilities), production of stable products (groceries, pharmaceuticals). these companies perform well regardless of how the economy is doing *** defense stock does not equal defensive stock, defense stock is associated with production of armed services, etc.

who enforces rules...

broker dealers: FINRA, SEC bank dealer: FDIC, FRB, controller of currency

MF, pop, nav, sales charge ex

mf has NAV of $24 and POP of 26.09 what is sales charge? =26.09-24/26.09=.08=8% if fund could be purchased with 5% sales charge, what would be the POP POP=NAV/100-sales charge %=24/100-5=24/95=.25 or 25$

annuity ex

money is dep into general account = fixed investor determines where $ is dep = variable (dif sub accounts) investor assumes investment risk - variable insurance co assumes risk - fixed (interest rate promise falls to insurance co)

pref. stock cumulative vs non cumulative ex

non cum 8% --> year 1=0, year 2=$2 cum 6% --> year 1=0, year 2=$2 *common stock owners earn no dividends for year 1 or 2 since pref. weren't paid the full amount what is payout in year 3 for each 1) non cum=8 2) cum= 16 (since they need to pay the full 6 for each of the previous years first)

Firm specific rules

not all oversight comes from SEC and FINRA, but principals providing oversight within the firm by constant monitoring to uncover any misuse/wrongdoing -compliance works with sales professional to ensure ethical trading environment -compliance creates rules that form WSP (written supervisory procedures) ** internal rules tend to be more stringent and materially different than those set by SEC and SROs

market maker

stand ready to buy/sell at least 100 shraes at their quoted prices at any given time

corporate actions department (what do they handle (list))

-this department handles the following - stock split, rights offering, proxies, tender offers, mergers/spinoffs, exchange offers, stock buy backs

other comp rules (training/edu exception.... reimbursed if (4) and what is an in house incentive

-training/edu exception: permits training program offerors (product distributors) to pay or reimburse for meetings which are attended by RRs and serve edu purpose if 1) RR has b/d permission to attend 2) attendance is not attached to sales target 3) location is appropriate 4) payment/reimbursement are limited to RR (not their guest) -in-house incentives: b/d can have non-cash incentives as long as they're based on total sales not sale of specific product (if this was the case, all RR would recommended this product to client=don't want that)

types of preferred stocks (5)

1) cumulative 2) non cumulative 3) participating 4) callable 5) convertible

coupon rate=interest rate=nominal yield (3 points)

1) fixed % of par 2) set when bond is issued 3) stated annually but paid semi annually ex: 10% paid annually per par value of 1000=50 per 6 months or 100 per year

annuity ex

62 yr old contributes 10K, she receives lump sum of 16K how it is taxed in each type of annuity 1) qual: all 16K taxed, 10K contribution is pre tax, earnings=6K, zero cost basis since no taxes paid, taxable amount is the full 16K 2) non qualified: 10K=fax free, 6K =taxed at her income bracket, earnings=6K, basis==10K, taxable amount is the 6K

MF expense ratio (two ways you may have lower expense ratio)

=% of a funds assets paid for opearting expenses/yearly operating costs=ongoing costs of ownership NOT sales charges lower expense ratio : 1) if fees are based on trading activiyt, lless trading=less costs (index fund=static=don't need high powered investment manager since they mimic a fund=less trading=less fees) whereas small biotech fund has a lot of trading and likely more fees 2)if certain fees are fixed, then as assets increase and fees remain the same there are less fees

USA patriot act (what is CIP)

CIP=customer identification procedure. B/d must verify identity of each customer within a reasonable period of time from account opening (doesn't need to be done prior) why??? terrorism and money laundering issues, this is to make sure they are who they say they are

depository trust/clearing corp

DTCC=breaks into DTC and NSCC but is the main holding co=central clearing for all broker dealers/corp securities. provides clearing, settlement info services through depository -eligible securities clear through the subsidiaries which are the 1) NSCC national securities clearing corp and 2) depository trust co (DTC) provides custody/safekeeping for securities -transactiosn completed through book entry=no physical shares, they add them to your bokerage firms acct and take them away from another=transfer of ownership

largest MF expense

INVESTMENT ADVISOR/MANAGEMENT FEE

rollovers/transfers

-no penalties if done the right way -rollover-owner receives proceeds but the money must be put back in in 60 days (60 day rollover) if not then there is 10% penalty tax plus other taxes. can only rollover once per year per SSN. government doesnt want you to use this on other things in case social security benefits won't be enough... these rules are trying to prevent you from depleting your retirement sources -trustee to trustee transfer: owner will not have access to funds like they do in a rollover... the funds are simply moving from b/d to b/d. can do this as many times as you want

3 stages of money laundering (placement, layering, integration)

1) placement=illegal cash is placed in b/d business 2) layering = series of transactions are executed which are meant to avoid detection 3) integration=getting proceeds from previous transactions that are put into stream of commerce (try to hide funds)

market capitalization of stock (5 dif sizes)

=based on size of company=how the market values the co=outstanding shares * market price 1) nano cap= high risk, small issues=below$50 mil 2) micro cap=between $50 mil and $300 mil 3) small cap=$300 mil - 2 billion 4) mid cap= 2 billion - 10 billion 5) large cap= >10 billion general thought=bigger=safer=more history/retained earnings/deeper talent pools/better connections politically etc=can outride contractions better

EMMA (electronic muni market access)

MSRB website, used by issuer and underwriter to submit docs -provides public access to muni market activity and statistics -various docs put there (Pre sale, disclosures, official statements) -includes plan info for 529, etc

QIB (3 qualifiications)

QIBS=qualified institutional buyers criteria --QIB=qualified inst. buyer=entity that must own/invest $100 million of securities & CANNOT be a natural person 1) certain types of investors qualify (NEVER WILL BE AN INDIVIDUAL): insurance companies, registered investment advisors or companies, small business development companies, private/pension plans, certain bank trust funds, corps, some non-profit, etc 2) must manage over 100 mil of securities unrelated to them 3) must be purchasing for their own account or account of another QIB

bond rating agencies/credit rating=how investors measure/are sure they will get their money back -who pays for these ratings -what are the concerns of the raters?

S&P and Fitch use all caps and +/- system Moody's use Aaa and 1,2,3 AAA, AA, A, BBB =investment grade BB, B....=speculative grade=junk bond=high yield bonds -the issuers pay bc if bond wasn't rated then it would be hard to market to investors/they couldn;t determine risk -the risk of default is their main concern, they look at liklihood they can be paid back

ratings for municipal notes

S&P: SP 1+, SP 1, SP2 = invesment grade, SP# = speculative grade or junk bond or high yield Moodys: MIG 1, MIG 2, MIG 3 (literally stands for moodys investment grade) =investment grade, SG=speculative grade/junk bond

foreign exchange (exchange rate risk, costs and revenue changes as dollar increases and decreases)

co that receive revenue/incur costs in foreign currencies will have exchange rate risk -co that sell globally do not always receive US dollars and pay with US dollars=must manage their foreign exchange risk costs: if US dollars is lowering in value, foreign imports are very expensive and vice versa so you may source imports from different places in world revenue: if selling oversees and dollar is decreasing, then oversees sales are more valuable bc foreign currency is worth more, if US dollar increases, foreign currency=worth less=lower revenue as US dollar increases

common vs preferred stock

common = have ownership in the company, greater potential for capital appreciation, typically has voting rights preferred stock= have ownership in the company, more likely to receive regular dividend payments, higher priority in the event of bankruptcy, issued with a specific dividend rate

option

contract between 2 parties. buyer always pays premium for their rights and sell receives the premium for their obligation 1) buyer/owner: said to be "long" the option, paid premium=cost of the option. they are buying the right to do something to the underlying stock=why you pay the premium, you haven;t acquired the stock yet but you establish the right to buy the stock at a set price 2) writer/seller: said to be short the option, they were selling something they didn;t own. the seller receives the premium, seller takes on the assumed obligation to do something if buyer chooeses to exercise their right (they would then have to go buy the stock and sell it to the buyer at specified price in the contract)

cost basis vs sale proceeds

cost basis: price of ownership=total paid to acquire ownership INCLUDING commissions paid/other fees sale proceeds: amount received LESS commissions

The securities acts amendments of 1975

creates MSRB to be SRO for firms that transact business in municipal securities, no enforcement but help formulate and interpret rules set by FINRA and the SEC

non-registered persons (what can they do?)

customer contact is limited to: inquiring as to whether customer wants to speak to RR, inquiring if they want to receive investment literature = not soliciting client, and extending invites to firm events -customer orders cannot be accepted, only entered and taken by RR, if RR is unavailable, unregistered rep can transcribe order so long as RR confirms order before it is entered -commission/finder fee cannot be paid to non-registered persons

bond characteristics - maturity date (3 dif types)

date principal is received 1) serial bond issues: when parts of an offering will mature at different times over several years 3)level debt service=when serial bond interest payments and principal represent approx. equal annual payments over the life of the offering 2) term bond issue: if all bonds in an offering are due to mature on the same date

trading prohibitions ex

front running=establishing, increasing, or decreasing, or liquidating position based on having knowledge of an unexecuted block order (includes derivatives). CANNOT trade in your own account until entire block order is executed/reported churning=generate fee/commissions trading ahead=RR executing orders for propreitary account ahead of release of research report, also can refer to trading before client

broker dealer - operations

make sure things are up to standard (paperwork, trades, etc) also generate statements, etc

USA patriot act of 2001 (CTR and SAR)

meant to prevent terrorist acts in US and around the world by enhancing law enforcement tools, establish process for verifying identity of customers', and increase ability to prevent, detect, and prosecute money laundering AND requires all potential money laundering to be reported -CIP (customer identification program) banks have to file report on the below: -currency transaction reports (CTRs) for transactions over 10K -suspicious activity report (SAR) for transaction equal to and exceeding 5K

types of investors (4)

retail, accredited, institutional, QIB

coporations structure - board of directors

sharedholders elect a board of directors who oversees management team, corporate governance, declare dividends

LP investor considerations (role of RR)

- investors need to know risks, this is job of RR who must inform them of this and make sure they can absorb any losses, would not be a good idea to put too much money into these... *** even in discretionary accounts.. the RR CANNOT exercise discretion in these products, they must be solicited=MUST talk to the client

sum for stop orders

1) sell stop orders=used when long the position=@ mkt price or lower 2) buy stop order=short the position=you hope it goes down but if not you protect it from going too high

not held order (what the B/D can decide and what the client needs to disclosure, 3)

-when RR can make decision for a client in a non discretionary account without written approval -called not held bc person/B/D that is executed trades is not held responsible -the 3 A/s = 3 things customer must disclosure for this to happen 1) action 2) amount 3) asset (customer discloses buy/sell, quantity, security) such as saying sell 1000 ABC whenever you think time is right -NEED al 3 to do this.. if missing info, we need discretionary auth/written approval - allows client to provide oral authorization or transaction execution=avoids discretionary authorization -B/D/RR can decided PRICE/TIME of order execution but the rest must be disclosed by the client ****these oral instructions are only good for one day**** if you want longer=you need written approval -must be marked not held order on ticket -RR usually executes ASAP unless they have a feeling that the mark may move in the right direction

discretionary account

-when client authorizes another person to make investment decisions in her account or deposit and or withdrawal funds -the following steps are required 1) authorization form = POA= trading authorization is signed by client/person granted authorization. principal must approve the account in writing prior to opening. each order must be reviewed/approved promtply by a principal (not in advance), activity must be monitored

FINRA has rules prohibiting sharing in accounts and guarantees

1) sharing in accounts: FINRA prohibits RR from sharing in profits/losses in a client's account unless a jt account is established with the client and employee has written permission of both client/b/d and sharing is in proportion to investment (if each put in 50%, they share in that portion of profit/losses), firm has made financial contribution to account **arrangement with family member is exempt from proportionate sharing requirement** -there are different rules for investment advisory accounts, if prior written consent, can share in profit/losses between firm/customer and firm is in compliance with SEC regulations 2) prohibition against guarantees: employees may neither guarantee against losses nor reimburse a customer for losses in any way

t/f

1) sharing in profits/losses in a client acct is always prohibited (F) 2) borrwing from/lending to client is acceptivle without firm notification if client is immediate family member (T) 3) if signs of diminished capacity are identified, firm should proceed with disbursing funds while contacting trusted contact (F) 4) generally, firms/RR are prohibited from paying compensation to any person who isn't FINRA registered (T)

traditional vs roth (the differences)

1) traditional: may be a deductible contribution but only if income is below a certain threshold -contributions are always allowed no matter your income but only those under x amount can it be deductible -RMD by april 1st the year after you turn 70 1/2 years old -growth = tax deferred so IRS makes you take it out and withdrawals are taxable 2) roth: contributions are never deductible because they are after tax dollars -certain higher income individuals may not be able to contribute/have roths -no withdrawal requirement like RMD for trad IRA bc the money is in after tax dollars -withdrawals are tax free so long as they are qualifying

MF expense ratio

=how expensive it is for you to own the fund =total of my fees in a given year =% of a funds assets paid for opearting expenses/yearly operating costs=ongoing costs of ownership NOT sales charges

required vs reasonable effort FINRA rules ex

FINRA required=name, address, RR of record, supervisory signature, age SEC says if you have the info you need to keep it on file... make reasonable effort to have DOB, SSN, etc... 1) name/address: required 2) SSN: not required, reasonable effort 3) name/address of employer (not required, reasonable effort) 4) signature of principal: required 5) whether client is of legal age (required)

hedging long/short positions

if you long stock you want to buy a put if stock goes down, gain on put can offset losses from the stock -if short stock you want to buy a call, give you a locked in price to buy @ so not bad if stock goes up... gain on the call if stock increases can offset loss on the stock

breakeven short put ex

short = seller mkt price = 32 sell 1 DEF nov 35 put @ 4 cash in: premium at 4 cash out: 35$ per share you ahve to pay if exercised/buyer put it to you so 35-4=31

breakeven ex long put

buyer ex since long mkt price=92 buy 1 ABC April 95 put @ 3.5 breakeven for puts = strike price - premium cash in: if exercised you will receive 95$ per share Cash out: premium at 3.5 breakeven=95-3.5=91.5

due bill

a check that the seller gives to the buyer as a transfer payment along with the delivery of the securities that were not issued on the correct date. the buyer was entitled to a dividend that the seller received instead due to back office issues, so seller incorrectly received it and must pay back to buyer. seller incorrectly remains stock owner/gets div. - this due bill accompanies delivery of stock **happens when SECURITIES are not delivered by record date**

MF transfer agent

act as registrar, paperwork center, computes net asset value, sends confirms, receives recurring fee for services

federal telephone consumer protection act of 1991

addresses customer complaints related to cold calling, anyone who is calling with a profit motive must maintain a do not call list and activity avoid calling people on that list (who requested not to be called) - additionally sets a timeframe for such calls, 8:000 am to 9:00 pm local time of the called party -only for unsolicited calls

sales charge

amount deducted from an investors purchase -major cost to client acquiring the fund -sec rules prohibit assessing charges in excess of 8.5% of POP -used to cover costs of underwriting, etc, mostly benefits broker dealers mostly

general annuity info/types of annuities (2)

annuity is sponsored by an insurance company, and it is a type of saving vehicle, that can grow tax deferred, usually is used for retirment savings in addition to 401k and/or an IRA (usually if you have capped on those contributions yearly) 1) fixed 2) variable

bond indexes (1)

barclays capital

the primary market (underwriter process overview, different agreements signed along the way (3))

issuer needs capital, they hire underwriter/broker dealer who assists in the process generally ONE lead manager signs 1) underwriting agreement with issuer they facilitate the distribution and assume liability that varies with offering type. one broker dealer usually does not want to do this along so they do a -syndicate bc it decreases the risk and increases the selling base 2) all syndicate members sign the syndicate agreement with manager which is called the agreement among underwriters=syndicate member agreement this specifies the participation %, unsold securities, etc) 3) broker dealers can be in a selling group which does not assume ANY LIABILITY, instead they assist in the sale only and they sign what is called the selling agreement with MANAGER

tender

issuer offers to buy back bonds in secondary market

MF Custodian bank

keeps assets safe, responsible for payable/receivable functions -receives fee for services

convertible preferred stock (conversion ratio & price of pref stock equations)

less risky than common stock bc you still receive dividends and if common stock rises so does pref. stock -conversion ratio (how many shares of common stock would i receive per 1 pref stock you own)= par (usaully 100)/conversion price -price of pref. stock = market value common stock * conversion ratio ex: investor bought 4%, $100 par convertible pref stock at $110, stock is convertible at $10 and common stock price has risen to $12.... sooo if you convert if you will get 10 shares of common stock * 12 =$120, if you keep it in pref. you only have a value of $110....

callable preferred stock

company has the right to repurchase back/call back the stock at a specified price, usually a price higher than the stock's par/face value so that investors want to buy it (so when itnerest rates go down... then they can also pay lower payments, this is an environment when call protection is most valuable to customer, when i-rates decrease)

investment companies, investment company act of 1940 (established 3 types of investment companies)

corporation or trust that invests the pooled funds of investors in diversified portfolios -act of 1940: prebuilt portfolios mainly for diversitification and established 3 tyeps of investment companies 1) face amount certificate company 2) unit investment trusts 3) management company: subset of which is a mutual fund investors give money to --> investment copmanies---> give money to the portfolio

convertible bond (conversion parity, arbitrage opportunity)

investor can convert bond into predetermined number of shares of common stock -investors have safety of receiving principal back at maturity but also could potentially take advantage of stock growth -accept lower yield for this feature -conversion price =set at bond issuance conversion ratio=# shares investor will receive at conversion= par value of bond/ conversion price -conversion parity: price of convertible bond=value of shares you can turn them into -arbitrage opportunity: locked in profit=taking advantage of price difference where it shouldn't exist you can pay discount price on bond and convert to higher priced stock then sell it ex: 1000/40=25 * 45 (market price of stock)=1125 (also equals parity price of bond)

preferred stock

issued by companies that already have common stock outstanding -better for investors interested in income not capital appreciation (like bondholders) -lack voting rights -issued with a par/face value of $100 corresponding to it's initial market price and will pay a specified dividend (for example a 5% preferred stock will pay $5 per value of $100) this dividend rate can also be listed as $5 for ex and this represents the max the shareholders will receive, but if the company is not doing well they can pay less

U.S treasury bond (3 main types, general info, why are they safe)

issued by the fed government and therefore backed by the full credit/faith of US govt= effectively no credit risk, and highly liquid -they are safe bc, 1) highly liquid, ability to convert to cash quickly and cheaply, 2) no risk -interest is only taxed at the federal level not at state and local level types: all are marektable in secondary market type 1: t bills type 2: t notes type 3: t bonds

debt securities

publically traded loans = bonds, notes, or debt instruments. The person loaning money/buying a bond is considered a creditor to the issuer and the amount they paid for is the principal that the issuer owes them and also makes interest payments throughout the duration of the loan -can be issued by banks, corps, etc

money market instruments (5 types)

short term debt, year or less, considered very creditworthy and very liquid, good place to park money for short term who seek safety but intend to have a large purchase pending/in the near future 1) t-bills: 2) bankers acceptance: created by foreign trade, import/export 3) commercial paper: unsecured obligation of corp, max maturity=270 days to avoid registration requirements 4) negotiatble certificate of deposits: unsecured bank debt (100,000 $ minimum). negotiable=can trade in secondary market 5) repurchase agreements (repos): dealer selling to another dealer with agreement to repurchase at a higher price the different = your interest) this involves 2 transactions

settlement

simultaneous delivery of security and buying of security in the marketplace (when a transaction is executed)

1/7 prohibiting trading practices - market rumors

spreading false/misleading info to influence price of stock/bond (ex) short stock then spread rumors to try to get price to go down

stock classification: growth stocks

stock of a company whose sales, earnings and share of the market are expanding faster that the general economy/industry average

ETN - exchange traded note

structured products issued as unsecured debt. trade on exchanges, have low fees, provide access to challenging areas of the market. appears to be bond like but its linked to an index and can be an equity index. you are promised a rate of return, but unlike bond you have to worry about how the benchmark is doing bc you can lose $. **if benchmark doesn't perform the principal and product is NOT PROTECTED bc only backed by full faith and credit of issuer.... *in sum it is linked to performance of benchmark but principal isn't principal protected* *issuer is obligated to deliver performance @ maturity* *index may be delivered back to you -not for the average investor -can purchase on margin/can short them

two major types of corp bond classifications (secure vs unsecure)

the debt issued is backed by the issuers full faith/credit but... 1) secure: ADDITIONALLY, specific assets back the bonds and thus bondholders have a claim against the specific asset=add to the creditworthiness of the bond. ex=mortgage bonds, equipment trust certificates, collateral trust bond 2) unsecure=debenture= no specific asset that the bondholder has a lein against=you are a general creditor = backed by full fait/credit earning of corp only. company can issue depentures after regulate depentures and those are called subordinated debentures which have JUNIOR claim if the co. defaults then the claims are subordinate to those of regular bondholders

bond characteristics - accrued interest

the interest that a bondholder is entitled to if they sell a bond between interest payments. it is the amount of interest earned during the period when they still owed the bond (so the seller of this bond is owed that interest from the new buyer in the secondary market)

covered/uncovered positions (options)

when you sell it it can be covered/uncovered 1) covered call= call is written against stock you OWN. sale of the call generates income, increased yield on underlying security. considered conservative option strategy. provides some hedge, if stock was to go down, you let the call expire but we keep the premium=doesn't offset full risk but still. we write call so we can keep premium, we gave up upside potential of stock bc we gave that right to someone to buy it from us @ higher price, we isntead take the premium if the stock goes up (letting call expire) 2) uncovered call: call is written but you don't own the underlying security. very risky bc if you don't have stok and call is exercised against you, you ahve to sell stock you don't have=you have to go out into the market to buy it (stock can increase by an unlimited amount) -sale of call=creates premium income= increased yield in addition to dividend on stock 3) covered put: put written when investor has enough cash to satisfy that obligation . so if stock falls to zero and you are put that stock you have cash to buy that stock. -can't have cash covered call bc if stock increases it has no limits... can never know how much you would need BUT for put you know how much cash you would need in worst case scenario 4) uncovered put=written without enough cash to meet obligation so increased risk if the security goes down uncovered options are done in margin NOT cash accounts covered can be done in margin and cash accounts

2/3 - limit order

where customer only wants to buy/sell @ specific price or better -customer specifies security, size, price -order is only executed if limit price can be met -limit=buy or sell that may not be executed *buy limit=buy at that price of lower *sell limit=sell at that price or higher ex) ABC trading at 30.75, she enters limit order to buy 1000 at 30. if it increasing you miss the mark/it is not executed. the price can also continually get better but investor set a threshold=profit not guaranteed ex) sell limit order: ABC trading at 29.4 is going to sell them client places sell limit at 30. risk=stock could go up to 45 or higher next week so profit is not guaranteed

primary market

where securities are issued, new company issuing stock for ex. beginning of a shares existence = primary distribution of issuers shares. funds are directed to the issuer

secondary market

where securities are traded: those who bought those in the primary market will want to sell them and this is where the secondary market comes into play. funds are no longer directed to the issuer, and instead pass between investors -sells securities with help of underwriter -issuer (needs capital)--> underwriter (facilitates distribution/buys from issuer/resell to investor)--> investor

order qualifiers (how long is an order good for)

there are different qualifiers that can be used to influence when/if an order is executed but the two popular ones are: 1) day order 2) GTC = good till canceled 1) unless otherwise indicated, all orders are day orders and are cancelled @ day's end if not executed 2)good till cancel/open order=stays on book until it expires, is executed, or is cancelled. this can be placed for one week, one month, or other specified period of time. the entering firm should be periodically checking as it is their responsibility. it can be adjusted for distribution on the security or partial execution (ex... if you had order for 1000 and there was a stock split, it is adjusted OR if you had order for 1000 shares and 500 were filled=it is changed to 500).

deadlines for equity option contracts (3 important times) (counter instructions)

they expire the 3rd Friday of the month listed when entered into a contract BUT there are 3 important times on that date 1) when option trading closes at 4PM eastern or 3 PM central 2) broker can submit exercise notice to their broker by no later than 5:30 PM ET 3) officially expires at 11:59 PM ET on this day by time 2 or 3, if the option is in the money then the OCC assumes buyer wants to service since it has value so the option will in this case be exercised for you... however you can give counter instructions if you don't want it to be exercised bc it may only be worth a couple of dollars and you don't think you'll have the ability to sell it and make any money

third market

trading away from traditional exchanges or OTC, on internet, etc. can accommodate after hours - usually between broker -dealers and large institutions

debenture (bond)

unsecured corporate debt=company not pledging asset backing up the bond such as a specific building/capital but simply full faith/earnings ability of the corp

annuity suitability issues (who is it good for and who is it bad for)

used as retirement plannning tool if you capped contributions to 401k etc. -target audience: 30-55 yrs old=better suited for younger investors bc of tax deferred benefit of variable contract so they may look for tax deferred growh to offset inflation, and for people who have maxed out other contributions for retirment unsuitable for: seniors/retirees bc this group wants immediate tax benefits... there are usually multiple year surrender fees (like redemption charge) and sales charges are very high meanings they are not great for short term investment horizon

market capitalization

used to indicated a company's size. this can be calculated by multiplying current market price of the stock by the number of outstanding shares

insider trading and securities fraud enforcement act of 1988

was created as a response to scandals in the 1980s. insider trading is using material non public information to make investment decisions, both tippers and tippees can be subject to violations. insider trading was illegal wioth the acts of 33 and 34 but no penalties were in place so this act established fines as high as $5 mil and up to 20 yrs in prison -SEC can sue up to 3x of the amount of profit made at the civil level (treble damages) -insiders=corp officers/directors owning 10% or more of a company's common equity

diversified definition (2 requirements for this... as it is a regulatory term)

regulatuary term= 1) no more than 5% of portfolio can be invested in any one company (thing to keep in mind, you may initially buy to follow this rule but if the value of certain securites increase, it looks as though they represent a lot higher % of the portfolio. Regulators say that you initially followed the rule and if the value grows beyond that you can still be considered to be diversified) AND 2) fund can't own 10% of any given stock/can't have more than 10% of voting rights ***1 and 2 apply to 75% of the portfolio, the other 25% can be invested in whatever they want *** ex: you invest $2000 (lets say 2% of your portfolio) in XYZ company, but they only happen to have $4000 worth of common stock... so although you are following the 1st rule, you own over 10% of the company's voting rights so you are not considered to be diversified

auction rate securities (muni security)=ARS

- long term holdings with interest they pay are reset at frequent intervals through auctions -2 types, one that is a bond with 20-30 yr maturity and 2) preferred shares with cash divident.

rule 144 and 144A

- rule 144: for stocks only (allows you to sell restricted or control stock have to this with SEC) - rule 144A = for stocks and debt offered domestically or foreign -EXEMPTION applies if it is under 5000 shares or total value of 50K or less - rule 144A provides exemption if selling restricted securities to qualified institutional buyer (QIB). restricted sercurities can be sent to them without volvume restrictions or holding periods -QIB cannot be natural person and has to hae a least 100$ mil of assets under management ** if securities of the same class are listed on exchange then they aren't eligible for 144A exemption typically 144A is used dfor big corporate debt offerings

FINRA (an SRO) (rules can be broken into 4 categories)

-NYSE and NASD merged to make FINRA in 2007 main SRO for securities industry, their rules can be broken down into 4 categories -local cop for all broker dealers/RR -must register to be a member/pay fee/take exam 1) conduct rules 2) uniform practice code (UPC) 3) code of procedure (COP) 4) code of arbitration

anti-intimidation/coordination interpretation

-SEC has found collusive behavior between b/d market makers that kept spread between ask/bid larger than usual --> wider spreads that hurt clients. they found that market makers would intimidate others not to narrow spread -sooo to prevent this this prohibits threatening/harassing/intimidating other market makers, and the coordination of price quotes, transactions, trade reports with mkt makers. as well as retaliating/discouraging the competitive activities of another market maker

warrants

-considered a "sweetener" type of derivative provided when you buy original stock or bond in the market -gives you right to buy shares above market value and for long term/perpetual -may be detached and traded separately (underlying security can be separated from the warrant itself)

covered vs uncovered options

-covered=you own the security/have the security to deliver (no margin requirement/risk is limited since you just deliver what you already have) -uncovered=you do not have the position=has to be done in margin account, margin is required as risk can be significant

DPP (direct participation program)- risk summary

-did you pick a good manager? up to management abilities of general partner -tend to generate losses in first years -illiquid/in product for a long time, can lost capital -unpredictable income -may be asked to come up with additional fund=assessment (can be mandatory) -high operating costs -tax law change an impact value of investment -gas/oil projects can have a large economic and environmental impact

updating client info (what FINRA rule requires)

-failure to update client's info in a timely manner -> could lead to the execution of unsuitable transactions/regulatory issues -if client moves to new state, both the firm/RR must be registered in that state to do business -change in financial background for better or worse, must be documented (dif pattern of transactions may indicate a change, you may detect a change based on this) -objectives are typically adjusted as customers age , may not want growth as they age, but want increased liquidity -FINRA rules require firms to send copy of updated change to customer info within 30 days or @ time the next statement is mailed bc if someone tried to fraudulently change your info they would know.. make sure no errors

asset allocation (passive vs tactical)

-focuses on a portfolio constructed of various asset classes -optimal portfolio=producing greatest return for given amount of risk is based on clients goals, expected return, risk tolerance -can't have low risk high return... there's always a trade off=divide capital into different investments 1) passive= (3 kinds) market is efficient - buy and hold - indexing -systematic rebalancing 2) tactical= (1 kind) -sector rotation is an ex

benefits of mutual fund

-investors buy into a portfolio that is professionaly managed, -very liquid -diversified -convenience and cost--> the best bang for your money, for low cost you can buy into something packaged that is diversified which would cost a LOT of money to do by just buying stocks alone -exchanges at NAV=net asset value=fundamental value of funds liquidation

6/7 prohibited trading practices - trading ahead of customer order

-occurs when after accepting client order a dealer executes an order for the same security on the same side of the market for its OWN account -ALWAYS must fill known client order first -exception exists if executed by dif. department @ same firm... bc you wouldnt have knowledge of this bc information barriers exist

opening an options account (options agreement)

-options agreement=gather client info, financial info/objectives, experience, etc. info doesn't have to be verified but if client doesn't provide requseted info a note is written on application ***acct can still be opened but it may be difficult to know what strategy is most suitable** -copy of this info is sent to client along with OCC options disclosure doc, the ODD)

derivative securities - preemptive rights (rights offerings and subscription price)

-preemptive rights = rights before the shares go public rights offering is available to some common stock holders, which occurs when a company intends to issue more stocks and they allow current shareholders to purchase some of the stock before it goes to the public -by participating in this offering their ownership in the company stays proportional, if they do not then their ownership in the company declines since there will be more shares -existing shareholders receive 1 right per share they own HOWEVER the number of rights required to buy one stock, the price at which the shares may be acquired, and the available period for exercising these rights will vary -typically the offer is only good for a couple of days AND the price is usually below the market price. PRESET/SPECIFIED PRICE = SUBSCRIPTION PRICE -investors who acquire these rights have two options 1) they can exercise them or 2) rights can be traded

B/D books and records

-prior to using electronic storage, must let SRO know (SEC=main one) -if electronic storage is other than CD-Rom B/d must give SRO 90 days advance notice -electronic storage media must have tamper evident feature or ability to record all changes made to contents

purpose of stock split/dividend (2 types, tax treatment, and ex) (type of corp action)

-purpose of stock split/dividend=> improves marketability of stock so for ex 7 for 1 split, stock for round lot instead of $700 per share is now $100=more marketable to people. **since no economic gain/loss from this event or any change in owners %, or change to issuers capitalization** simply makes it more marketable 1) forward stock split: 2:1, 3:1, etc. this is when more shares are created at a lower price per share 2) reverse stock split: lower # of shares @ higher price 1:5 **for both, dividends per share are adjusted proportionately** tax treatment: additional shares aren't taxed bc dollar value of what you had stayed the same (total basis is unchanged, but basis per share is adjusted) ex forward split: -investor owns 100 shares of XYZ at $180/share, XYZ co executes 3:2 split...(for every 2 shares they had, they are not going to have 3) Before split= 100 shares, $180/share, total value=$18000 after split= 100*3/2=150 shares -180*2/3=260/3=$120 per share -total value=150*120=$18000 (ALWAYS SAME AS BEFORE) ex reverse stock split -investor owns 1000 shares of XYZ @ $10/share -executes 1:4 reverse stock split so for every 4 shares they have they're only going to have 1) -before=1000*10=10,000$ -1000 shares -$10 per shares after= -1000*1/4=250 shares -10*4/1=$40/shares $40*250=$10,000

treasury bill quoted by ____ not ____

-quoted by yield NOT dollar price -higher yield bid represents lower price but ask's lower yield represents higher price

ADR =american depository receipt (2 types)

-shares or foreign stock sold in the U.S. so investors can buy using US$ and get dividends in US$ 1) sponsored=issued in cooperation with foreign co and traded on US exchanges, co pays for sponsorship program by giving shares to US bank to convert 2) unsponsored=issued without involvement of foreign company, trades in OTC market, brokerage firms pays for ADT program bc they think they can make a commission off of these stocks

POA (2 types)

-someone who can act on behalf of owner in best interest, can be RR and can be relative, etc --> = THIRD PARTY ACCOUNT since not owner of RR -2 types of POA 1) limited trading authorization: this is more frequently used... it allows POA to buy/sell securities but can't withdrawal funds/cash 2) full trading authorization=allows for execution of trades, withdrawal of cash and securities, check writing priveleges

types of orders (3, just list them)

1) market order 2) limit order 3) stop order

bond characteristics- coupon rate (fixed/variable)

: AKA fixed interest rate paid on the bond, based on par value. Coupon rate is usually higher with longer term bond since these are riskier, the investor expects a higher rate of retun, investors accept lower rates of interest for shorter term bonds since these are less risky since the money is returned relatively quickly and there is less chance for market movements that may change the value of your investment (if I-rates go up or down around you but you are locked into your rate). can be fixed or variable/floating -fixed or variable/floating: most are fixed for the lifetime of the bond (fixed) but some adjust to reflect market conditions as intereste rates move up or down= (variable or floating rate securities)

annuity phase - phase 2 (annuitization and 4 payout options)

=payout=dependent on age, gender, life expectancy, payout option selected, value of separate account= fixed # annuity units * fluctuating value -annuitization, as investor you are giving up control of your contract and the insurance co pays out x amount to them into retirement -insurance co guarantees some amount of income -accumulation units are converted into a fixed number of annuity units -insurance co makes a guess about your group.overall life expenctancy based on age, gender but there are always 2 unknowns 1) your actual life expectancy (this is risky for them..) 2) how much $ will grow in the insurance co hands -they give you options for payout (4 options) irrevocable=choose carefully: 1) straight life contract: highest possible payout, leaves nothing for benef=high risk, high reward. receive payments for life (always has largest payment) 2) life annuity with period certain: life income with period certain annuity. Annuity that guarantees regular payment of a certain sum for the life of the annuitant. In case he or she dies before the completion of a specified period, the payments are made to a designated beneficiary until the end of that period. payments made to annuitant for life or to benef for specified # of years (10 or 20 yr guarantee for ex), lower per month payment but with longer guarantee. so it is a min guarnatee in the event you die prematurely... but it is still a lifetime annuity soo if you are still alive after the guarantee period then you're still paid 3) joint and last survivor annuity: takes a double death to cease payments... if you die, payments to to spouse. Looks at combined life expectancy of 2 parties.. if older=higher payout 4) unit refund life annuity: @ least gets original investment back (of principal), and @ death remaining paid to benef

ex calculate sales charge (sales charge equation)

NAV=bid=9.2 POP=ask=10 sales charge=(POP-NAV)/POP=10-9.2/10=.8/10=.08=8%

exchanges

NYSE (where trading is maintained by the DMM), NASDAQ (unlimited # of market makers)

2/7 prohibiting trading practices - front running

RR executes trades for proprietary accts (those which they have discretion) ahead of customers BLOCK ORDER = tempting to buy for your own account prior to known client block order block order=An order to sell or buy in a quantity that is large relative to the liquidity ordinarily available from dealers in the security or in other markets=has the ability to move the market issues when: -buy or sell before the client - buy derivatives (call options, etc) prior to client order execution

account registrations 4/7- accts for minors (UGMA, UTMA, 2 components, UPIA, rules arounds gifts)

UGMA=uniform gift to minors act UTMA=uniform transfer to minors act *tend to be inexpensive but a lot of rules associated* -state law determines age of minor components 1) one minor=legal owner--> they're responsible for taxes so you need their SSN. if child dies, state law determines asset dist since they likely won't have a will 2) ONLY one custodian=adult=has authority to initiate activity as fiduciary. under uniform prudent investor act (UPIA) a custodian may delegate investment functions to a third party gifts: they are irrevocable (may not be taken away) and can be in cash or securities -covered options/penny stock transactions may be permitted -NO margin, ONLY cash accounts -no limits on # of donors or on value of gifts -taxes may be due from donors if gift exceeds 15K per year (the gift limit) -if capital gains occur in account, minor is technically responsible for paying these taxes based on their tax rate (since owner) *when minor reaches age of majority, assets must be transferred into their name

firm (in house) rules (3 types of employees)

WSP - written supervisory procedures, outline policies and procedures to to supervise workers. this is essentially a manual. 3 types of personel 1) registered principals 2) registered representatives 3) and unregistered employees

MSRB investor edu

annually MSRB members (b/d, banks, etc) must disclose the following: 1) MSRB website address 2) that they are registered with MSRB and SEC 3) statement re availability of a brochure (investor brochure) on MSRB website which describes the protections avilable to customers and process by which complaint may be filed with appropriate regulatory authority

stock classification: cyclical stocks

associated with businesses whose earnings fluctuate with the business cycle -examples include household appliances, steel, construction, and automobile companies

investment advisor vs broker dealer

broker-dealers earn commission for executing trades while investment advisors charge fees for providing advise to their clients (based on % of assets under management AUM) and are charged whether trades are executed or not

convertible preferred stock

caters to investors who care more about capital appreciation than income, the trade off is obviously a lower dividend rate -investors can convert the par value of the stock into a predetermined number of common shares at a specified price -conversion ratio = par value/conversion price, for example take $100 and conversion price is $25 then the investor would be entitled to 4 shares of common stock for every one share of preferred stock -sometimes the issuer will add a callable feature to this stock, to let the stock be called will depend on the relative price of the common stock

MF investment advisor

chooses securities, IAR= investment advisor representative -is the fund manager, will adjust holdings/allocations as market changes (liquidate and reinvest in something new) -subject to SEC scrutiny under 1940 act -manages based on objectives from BOD -invests assets, provides analysis and research, implement appropriate diversification -earn management fee=NOT transactional based, it is recurring and expressed as a % of assets under management (AUM) ***usuually the largest expense of the fund *may pay sales charge once, but pay fees recurring

Local government investment pools (LGIP) = muni fund securities

created by state/local government as a way to invest funds of that government. They purchase an interest in a trust, a diversified portfolio with safety of investment -NOT for retail investor/general public

order of events for cash dividends (the dates)

declaration --> ex divident --> record --> payout - ex: if i buy stock on the 11th, it settles on the 13th. but they open the ownership books on the 12th (record date) you wont receive a dividend, last day you could have bought it was the 10th so you were owner on record date. if buyer does not get dividend the seller is entitled

options/OCC

derivative product that track the value of an individual stock or index. exchange-traded options have a standardized set of terms... set by the OCC options clearing corporation.

stock classification: blue chip stocks

describes common stock of large, well established stable mature companies with great financial strength (with long unbroken records or earnings and dividend payments)

529 direct sold vs 529 advisor sold

direct sold: involves no salesperson, can do online, sold directly through 529 savings plan website advisor sold: sold through broker dealer that has selling agreement with primary distributor of 529 plan

bond charactreristics: zero-coupon bonds

do NOT receive periodic interest payments, instead they buy bond for discount but can redeem it for it's full value at maturity (this difference is considered the bond's interest), longer the maturity=deeper the discount from par value

treasury securities (2 types, marketable vs non marketable)

do not need to be regsitered, are considered the safest fixed income investment, backed in full faith by u.s gov, other ratings are determined by this. 1) marketable (WHAT WE FOCUS ON): negotiable=traded in secondary market=treasury bills, notes, bonds (these are most popular 3), trasuring separte trading of registered interest and principals securities (T-STRIPS), treasurng inflation protected securites (TIPS), and treasury cash management bills (CMBs) 2) non marketable: non negotiable = purchased and redeemed back to the u.s govt

zero coupon bond (trades flat, accreted) (2 reasons why this is beneficial)

does not pay annual interest, instead you pay a discount on the bond price and at maturity is worth face value, so the value you gain at maturity is considered your interest payment (dif between discount rate and par paid at maturity) (+) not subject to reinvestment risk (risk that you may not be able to reinvest coupons received at same rate) since interested is not paid annually but only technically one time at the end (+) locked in return bc you know you get par value at maturity, nothing happens in between -trades flat=no accrued i-rate when sold (typically with bonds you pay price of bond and accrued interest rate that previous owner is owed) -accreted=adjustment cost basis which is accredeted up to par value, you pay taxes on this

rule 145

doesn't deal with restricted securities -instead regulates reclassificaiton of one security into a new security as an offering subject to registration/disclosure requirements -what is subject to this rule? substitution of one security for another, securities that are a result of a merger or acquisition, securities issued after a transfer of assets form one corporation to another (these are all considered an offering so must issue prospectus) what isn't subject to 145? -stock split, reverse stock split, changes in par value (bc not giving up something to get something)

authorized shares

during incorporation (articles of incorp/charter) specify how many total shares can be issues, this can only be changed by a majority vote among the BOD and thus a change in the articles. most companies issues fewer than this number in order to safe some for future use

firm supervision - principals

each firm representative (employee) is assigned to a supervisor/principal who mangage certain areas of the b/d. types of principal licenses: -general securities sales supervisor = series 9/10 -general securities principal = series 24 -investment company/variable contracts products principal (oversee series 6 employees)= series 26 - financial/operations principal = series 27 -munincipal fund securities limited principal = series 51 - muni securities principal = series 53

systematic risk (4) market risk, i-rate risk, inflation risk, event risk

effects the value of all securities and CANNOT be avoided through diversification this includes: 1)market risk: risk inherit in all securities due to market fluctuations. a poor mkt drives all stocks down and vice versa 2) i-rate risk: value of fixed income investment will increase and decrease due to changes in i-rates 3)inflation risk: risk that an asset or purchasing power of income may decline over time, due to decreasing value of currency=why you want to calcuclate real interest rate (nominal yield- inflation rate) 4) event risk: terrorism, etc. a sigificicant even that will cause bid decline in the market

ECN

electronic communication networks -act in only agency capacity -connect buyers and sellers electronically, anonymously, during and after trading hours

option contract, standarized components (aggregate contract price) what happens if in this ex stock goes to zero

equity option is a contract to buy/sell specific # of shares of stock at fixed price over some time period option contract is defined by: 1) underlying name of security/stock 2) expiration month of contract 3) exercise price=strike price 4) type of option (put/low) ex: buy 1 ABC June 50 Call @ 5 buy 1=each contract represents 100 shares of ABC ABC=company stock June=expires 3rd friday of exp month 50=strike price call=right to buy stock @ 5 = preimum of 5 points per share so total premium is $500 if stock goes up to 55$ per share, we make our money back bc we bought at 50$ per share with 5$ per share premium so 55$ is breakeven if you exercise = you can buy 100 shares of ABC at $50 per share=$5,000 aggregate contract price in this ex.. what happens if stock goes to zero -you don;t buy it... you let the contract expire and worst case is that you the premium total of $500. your risk is limited to premium

death during accumulation phase (annuity

ex 1) if you put in 100K and it grows to 300K, when they die the benef. would get 300K, the account value. the 200K that grew from the oringal contributon is taxable and must be paid by benef as regular income tax ex 2) puts in 100K and the accounts falls to 60K, benef will still get 100K = you cannot lose $ if you die while contract is under water... beneficiary will get the greater of original contribution OR market value of contract

whether option is in, at, or out of the money

ex to follow: strike price of $60/share, when is option convey a right that is worthwhile based on dif between mkt value and strike price=when option is in the money think about it like this: call up (you are in the money when the stock goes up in price for BOTH buyer and seller) why would you buy at 60 if it is worth 50 put down (you are in the money when the stock price goes down for BOTH buyer and seller) why would you sell at 60 if you bought it at 70

churning

excessive trading as to size/frequency as for the sole purpose of generating commission. can happen in any acct but tends to happen more frequently in discretionary accounts -commission earned is usually > profit provided to customer

4/7 prohibiting trading practices - churning

excessive trading for purpose of generating additional fees/commissions (can be tempting especially in discretionary accounts) - no strict definitions so difficult to catch (look at frequency/investor overall strategy) -quality of stock is irrelevant, can be done with good and bad stocks

markets within the secondary market (2)

exchange market, dealer-to-dealer market 1) exchange market= electonric of phsysical (NYSE- has one DMM) centralized trading venue that functions as an auction, auctioneer who controls trading in a given stock is DMM (designated market maker) 2) dealer to dealer market= when stocks don't quality for physical or electronic markets they trade over the counter (OTC, usually low priced/thinly traded, done between two parties without the supervisory role of an exchange) people connect over phones or computers, usually less trading acivity than Nasdaq. most bonds (non-equities) are traded in the OTC market (no organized exchanges aside from certain bonds). securities that are traded over the counter are traded in a dealer to dealer market. for companies that cannot meet requirements to trade on larger/more centralized exchanges. in otc market, spread between bid and ask is larger, usually smaller co since it is timely and expensive ot get on exchange -NASDAQ (has several market makers), is a dealer market but not considered OTC

broker dealer - trading

execute trades for the firm and the firm's clients and occur in electronic market places NASDAQ or hybrid ones such as NYSE

securities trustees (other important entities in the market)

for certain types of bonds a trustee is assigned to hold security interests

mutual fund structure (5 parts)

fund company=HH=brand name, will have a lot of investment options each with own target goal. think of this as a car company, offering many dif models XYZ fund=one offering within the HH has many different parts 1) custodian bank=holds funds, cash, securities for safekeeping 2) board of directors: protect shareholders, independent =no employees, set agenda for fund 3) underwriter/distributor/wholesaler: market product line to broker dealesrs who market to their clients 4) investment advisor: earn a fee to render advice, AKA portfolio manager 5) transfer agent: does all back office/paperwork, issues, redeems, cancels funds, paperwork

general and limited partner (limited partnership)

general partner=managerial=job is to manage program but also protect LP interest... they are viewed as fiduciary toward the LP. they make choices on who to hire, fire, pick properties. they have UNLIMITED personal liability. they also have to have at least 1% interest in the fund so if 100mil raised they have to put in at least 1 mil. limited partner: write checks, they're investors but passively, not involved with management, can't negotiate contracts, have certain rights such as the ability to lend money to the partnership, inspect books, contribute capital. ways to endanger this status=do things that only GP can do

return of capital

getting your OWN money back=not taxable, doesn't occur on a lot of investments, but it is when the investor receives some or the original investment back

agency securities - mortgage backed (pass through cert, what are the risks)

ginnie mae (GNMA)=government guarnateed, fannie mae (FNMA), freddie mac (FHLMC) (both are backed by the agency ONLY) -they issue pass through certificates which are: when a group of mortgages with similar fixed rates are pooled together and then sell the interest in this pool to investors -each mortgage payment made by homeowners is made up of interest and principal, which is paid to bank servicing the loan who keeps a fee for this, the rest of put into the pool so these payments are being passed through to investors (int/principal) -the interest portion is FULLY TAXED at state, local, fed level -risk= prepayment risk=get payments sooner than you thought. homeowners will often times pay off a mortgage faster bc they are moving or are refinancing bc of i-rate decreases (for refinancing specifically). these prepayments usually speed up when i-rates go down, so you get your money faster but will reinvest at lower rate -so why buy them? higher yield than treasury=yield pickup, have good credit quality with higher yields than treasury

ex mortality risk expenses (annuity)

guarantees payments for life regarldess of life expectancy soooo if you live to be very old and contract is out of $, the insurance co will add $ to continue to pay you until you die... that is THEIR risk NOT yours (why they do life expectancy risk assessment, etc)

hedging risk (general)

how to protect portfolio - options=way out @ fixed price. equity options can protect individual stocks. index options can protect entire portfolio. currency options can protect against exchange=rate risk (to hedge US dollar, investors must take opposite posotion on currency option) - if investor ancitipates an increase in asset value but fears a decrease they should buy a put (right to sell at fixed price) buy option in opposite direction to hedge - if anticipate decrease, but fear increase --> buy a call (prevent infinite losses). usually means you short the position **** long buy puts **** short buy call

underwriting spread ex

identify how underwriting spread is distributed for sales that are credited to the different market participants managing underwriter: -gets member, managing (only person that can get this), and selling group fees syndicate member: -gets member and selling group fees selling group: -gets selling group fee

Cumulative preferred stock

if the company doesn't pay all of it's owed dividends, if it is cumulative then the preferred stockholders receive dividends first (before common stock holders) **most preferred stock is cumulative** -missed dividends accumulate and are paid back to preferred stock owners before common stock owners

tools of the fed reserve board (4) reg t, discount rate, reserve requirement, FOMC

in order of least to most used 1) regulation t: extension of credit by b/d (not altered much historically) 2) discount rate=when member banks borrows directly from the fed=only rate DIRECTLY controlled by the fed 3) reserve requirement: how much $ banks has to set aside/not lend, based on % of deposits. if 10% =must keep 10% and only lend 90%. if you increase reserve requirements --> decrease in loans 4) fed open market committee (FOMC): buy/sell treasuries to influence $ supply

earnings per share

increases when you repurchase a share since it is how much $ they made divided by the number of shares outstanding... so same profitability divdied by a smaller number of shares (since they were bought back) --> bigger earnings per share

fed reserve board (4 main tools, and what are their 3 main goals)

independent agency of US govt that functions as central bank -controls money supply and influences the interest rate, increase $ --> decrease i-rate -goal=low inflation, stable prices, max employment -4 main tools: 1) open market operations=fed buying and selling securities to influence money supply (MOST COMMON) 2) discount rate = only i-rate they ACTUALLY SET, they influence many others 3) reserve requirements: increase this=less banks can lend 4) regulation T- amount to deposit in order to buy on margin, currently 50%

registration requirements for RR (u4 has 2 pieces of info, disclosure reporting page, predispute arbitration agreement)

initiates process by filing u4 u4 includes two pieces of info: 1) personal info including residential/business 2) info related to violations/SRO rules and finally includes a disclosure reporting page 1) if registrant answers "yes" to any legal/disciplinary questions additional info is needed on the DRP u4 predispute arbitration agreement: agree to resolve disputes with employer/other associated persons through arbitration -any false or incomplete info --> registration revoked

fourth market

institution to institution trading, doesn't involve public markets or exchanges. many times broker dealers are setting up these trades

interest bearing bonds vs zero coupon bonds

interest bearing bonds = pay interest at regular intervals and are for investors who desire CURRENT income zero coupon bonds=pay interest (technically) at maturity in lump sum payment, and is for investors who desire a lump sump payment at a future date

U.S. Treasury - t notes:

interest bearing paid semi annually 2-10 year maturity, traded at $100 or multiples of, book entry form, periodic auctions -quotes at % of par in points and 1/32 of a points

U.S. Treasury - t-bonds

interest bearing, paid semi annually, book entry, periodic auctions, $100 or multiples of, maturity = 10 + years -accrued interest is paid by taking actual number of days since last payment/365 as opposed to other methods that assume 30 days in each month -quotes at % of par in points and 1/32 of a points

institutional investors

large investors that pool money to purchase securities (banks, insurance companies, pension plans, endownments, hedge funds which are referred to as qualified institutional buyers (QIBS) -defined by value of assets invested, usually not individuals

TIPS (Treasury Inflation Protected Securities)

major concern re holding asset for long time is that the prucahsing power upon return of your money will not go as far... people buy TIPS bc although intaerest rates are fixed the principal paid back varies based on CPI, if delfation occurs it wil decrease but NOT below 1000. -5, 10, 30 year terms only -taxed at fed level but not state or local level ex: 4% coupon, original price=1000, but inflatino rose principal to 1030... how much interest is next payment worth.. well interest rate is fixed but you take 4% of the 1030... sooo next payment = 20.6$ or 41.2 annualy)

SRO regulation (3 examples)

member organization you must join to be in securities industry/how SEC keeps watch since they have limited funds, etc. the day to day cops day-to-day rules that brokerage firms must follow are set by the SRO even though the SEC is in charge of overall regulation -FINRA (financial industry regulatory authority) -MSRB (municipal securities rule-making board) -CBOE (chicago board options exchange) maintain rules to treat customers fairly (fair and equitable trading) the trouble is that they have no ability to punish violators all broker dealers must join an SRO

equity indexed annuities (EIA)

middle ground=offer fixed rate but also returns which vary based on the market (tied to an index) -hybrids, offer minimum return but offer upside meaning meaning if the offer is a 3% guarantee but the stock market does better= you may have the option for upside returns BUT if market does poorly you will still get the 3% the catch is.... -if market goes down, you still get 3% but if market does really well, there may be a cap on your returns=participation rate=limit index appreciation client will receive (this can be 80% etc meaning if index returns 10% you get 80% of the 10%, etc this is a stated value..) -appropriate for investor who doesn't wnt to lose $ in stock market, but for this safety they trade any return above stated maximum

trading rules - MSRB time of trade disclosure

muni bonds don't trade as often --> difficult to find quotes so MSRB requires disclosures to be made of all material info at time of trade or prior this is the case for solicted and unsolicitied, primary/secondary markets also where b/d is agent and principal -MSRB Rule G-47, on time of trade disclosure, requires brokers, dealers and municipal securities dealers (collectively, "dealers") to disclose to their customers, at or prior to the time of trade, all material information known about the transaction, as well as material information about the municipal security that is reasonably accessible to the market.

trade confirms (what they must include, 7)

must be sent on or before settlement of transaction -only if trade goes through (in whole or part) is one of these produced - what it must include are: 1) name of customer 2) buy/sell 3) price/quantity 4) trade/settlement dates 5) firm capacity (acting as agent or principal) 6) for bonds, price of bond and yield info 7) name of contra party or a statement of the availability of info upon written request (tell name of other firm if executed with them)

Nasdaq (electronic)

national association of securities dealers automated quotation system

qualified vs non qualified annuity

non qual= contract yuo bought personally, unrelated to employment status. available to anyone, and no limitation on contributions. but also no up front tax benefit bc they are after tax dollars used so these after tax dollars determine cost basis (or principal) so the good thing is the cost basis is dist tax free, any growth is taxed though qual= bought through work, funded on a pre tax basis, offerred to certain types of employees (mostly tax exempt organizations or public schools, 401K are typically tied to corporate world), since pre tax basis, this is deductible in the sense that this is deducted from your pay so you you have less gross pay to be taxed by the IRS (immediate benefit) = zero cost basis so the entirely of the contract will be taxed upon distribution - contribution amount is limited

outstanding stock

number of shares that have been issued to the public MINUS any stock that has been repurchased by the company (treasury stock). this stock receives dividends and has voting rights

prospectus contents (what MUST it include)

offering document used whenever an issuer sells securities, DOES NOT HAVE TO BE AN IPO. so long as they are coming directly form the issuer this is neeeded. broker dealer will usually provide you with this -must include: they outline objectives of the fund, risk , historical performance, sales charges, operating expenses, exchange priveleges (other fund flavors within the same HH brand), breakpoint table=discount for volume, share class comparison table (choices you have in how you would like to buy the fund, dif class types represent diferent pay structure)

offering memorandum--> registration statement--> official statement-->

offering memorandum- disclosure doc for reg d offerings registration statement - includes prospectus/all co. info that issuers file with SEC. can do shelf registration with this so long as they submit updated prospectus every time they come to the market official statement --> disclosure doc for munis (not required but often times issued since it helps market the security

main breakdown of mutual fund (2, open vs closed) a type of management company which is a type of investment company

open v closed refer to the capitalization of funds 1) open end: issued and redeemed at 4:00 value, these are not traded. ongoing $ raising, more and more money is taken in=continue to issue new shares so the investment pool/capital to invest is always increasing. can ONLY issue common stock to raise money, shares are ALWAYS new issues=will always come with a prosectus regardless of how old the fund is, since it is coming directly from the issue=always in primary market **shares sold at NAV+sales charge *sponsor stands ready to redeemd your shares or ell you new ones at all times *can't buy on margin and can't buy short since new issue 2) closed end: trade throughout the day, one time money raise=fixed amount of capital, can raise money through issuance of preferred, common or debt securities, shares trade in secondary market= no prospectus required **NAV is less important for closed ended funds since supply and demand really determine it, they trade throughout the day at a discount or premium to NAV can drift from this due to supply and demand *once initial issuance is over, you must sell ot other investor to redeem it (secondary market) *can buy on margin/credit, can buy short as well *trades like a stock, up and down

options ex

option: ABC june 35 call @ 3 mkt price: 36 in/@/out of the $: in the money intrinsic value: 1 time value: 2 option: DEF Apr 60 Put at 7 mkt price: 54 in the money intrinsic value=6 time value =1 RST Jul 35 Put @ 1.5 mkt price: 35 at the money intrinsic value: 0 time value 1.5 XYZ Aug 110 Call @ 2 mkt price: 109 out of the money intrinsic value: 0 time value =2

FINRA - code of procedure

outlines process to discipline anyone who breaks FINRA rules, acting as a COP -parties involved=FINRA and broker-dealers and or FINRA and registered reps -can result in fine, censure, expulsion, suspension AND INVOLVES APPEAL PROCESS -only SEC through DOJ can imprison you

in arrears

owed

bond characteristics (par value)

par value=AKA principal is the amount the issuers agrees to pay the investor upon maturity (so if you pay $1000 you will receive $1000 at maturity

if we change the price of bond we refer to this as___ if we change the yield of a bond we refer to this as ____

points basis points there are 100 basis points in 1%, so they are 1/100 of 1% instead of saying trading at 4.6% ytm many say trading at 4.6 basis meaning trading at at price that is equal to ytm of 4.6

Participating preferred stock

preferred stock return is generally the max annual return that an investor can expect to receive, but for those who buy participating preferred stock, they can receive greater dividends if ... 1)the company is doing well 2)common dividends exceed a certain amount

prime brokerage accounts (service of clearing firms_

prime brokerage service is bundle of services, and the clearing firm acts as a centralized location for the clients assets, and this generates one statement = consolidated bookkeeping even though the client may use several broker-dealers, they choose one prime broker (one clearing firm) -hedge funds for ex use a lot of dif. brokerage firms to trade but don't necessarily want to have that many accounts, they would rather have a consolidated account at one firm but deal with multiple --> consolidated statements, all trades settle/clear through the one

hedge fund

privately managed investment fund that attempts to have above average rates of return using speculation, short selling, margin, arbitrage -pools of capital used to invest, very important customer to broker dealer since they do a lot of trading

FINRA - code of arbitration

process to resolve disputes between members/as well as those that involve customers -settles monetary disputes mostly -parties are broker-dealers, RR, customers -can result in monetary settlements & NO APPEAL PROCESS -doesn't have to be rule violation can be customer complaint etc -cheaper than litigation arbitration=determine if person is owed an amount, etc

SEC rule 10b-18

provides rules surrounding repurchasing of company stock... to prevent issuers from manipulating the stock price... it is okay if the following are true 1) only one broker dealer used 2) cant be made early or late in the day 3) price is restricted 4) amount (Q) is limited

Employee retirement income security act of 1974 (ERISA)

provides standards for funding and eligibility of private retirement plans such as 401K as well as fiduciary responsibilities of trustees

FINRA rules for opening cash accounts (what is required info (5), additional not required info)

required info: name (# code is acceptable), address (can't open with PO box alone unless in the military PO box is okay), age, RR of record (can be handled by a team as well), signature of supervisory/principal, copy of info must be provided to clients @ least every 36 months (saying here is what we have, are there any changes). customers are NOT required to sign new accounts form (for margin account they do however) not required info (although most firms get it) 1) tax ID/SSN 2) occupation, name and address of employer 3) whether associated with other member firm *document client refusal if any of this information is not provided*

restricted vs control stock

restricted: 6 month holding period, received through private placement or as compensation for senior exec control/affiliated stock: no min requirement holding period, registered stock, purchased in open market by officers, directors, (anyone owning 10% of more) **both must follow rule 144, and a control person can own both types of stock since they can acquire privately but also purchase on the market**

ex, using NAV and sales charge to calculate offering price

sales charge=5% NAV=$69.8 NAV/(100-sales charge %)=POP, denominator=complement of your sales charge sooo 69.8/100-5=69.8/95=.734=73.4$ sales charge=8.5% NAV=45.95$ 45.95/100-8.5=49.5/91.5=.5021 or 50.2$

sales charge does NOT equal commission

sales charge=issuance/primary distribution and is fixed whereas commission refers to trading activity=secondary market

DTCC - deposit trust & Clearing corporation

securities depository and national clearinghouse for the settlement of transactions in equities, bonds, mortgage baked securityes, derivatives, etc , insurance products, money marke, mutual funds -will do securities issues by US and foreign entities -automate and centralize transactions -DO NOT HOLD SECURITIES -non-profit -within DTCC=NSCC (national securities clearing corp=for equity side and FICC (Fixed inc clearing corp)

settlement vs. payment date (exempt securities from Reg T)

settlement date=SEC rule designed to be applicable to brokerage firms (they settle between each other on this day). the customer isn't regulated under this rule so.... there is what is called Regulation T Payment Date=special rule from Fed Reserve Board, customer must pay brokerage firm in cash (100% or pay in full)/margin (50% of total must be paid) account within 2 business days of settlement (so T+4 or S+2) -many brokerage firms don't like this/have stricter rules that they must pay on settlement bc that's when brokers pay eachother. most customers also have brokerage accounts or accounts tied to a bank account so funds are usually already available (most people don't pay by check) *options follow this rule... require like corp securities that customers pay on 4th business day. exempt securities from Reg T: (payment generally due on settlement) -munis -US govt ex: options/us securities=settlement of t+1 muni/corp securities=t+2 2 business days after regular way=T+4 or s+2 settlement using cash=same day negotiated settlement not earlier than 2 business days=sellers options

municipal notes (6 types)

shorter term than bonds, , year or less usually, issued to assist with cash flow needs. tax free at fed level -issued in anticpation of future event that will provide money to pay off debt 1) tax anticipation notes (TAN): issued in anticipation of future tax receipts they will collect 2) revenue anticipation notes (RAN): issued in anticipation of future revenue they will receive from state or fed subsidies 3) tax and revenue anticipation notes: when TANS and RANS are issued together 4) bond anticipation notes (BAN): issued in future anticipation of future long term bond they will issue 5) grant anticipation notes (GAN): issued in anticipation of fed grant to muni 6) construction anticipation noten (CLNS): issued by municipalities to provide funds for the construction of a project that will eventually be funded by bond issue.

7/7 prohibited trading practices - quoting a security in multiple mediums

shouldn't display quotes on same security in multiple markets, only permitted if quotes are same price

broker check

some of this info is available to public against RR=can check background (disciplinary history or firm/RR) -contains: (2 general categories) 1) background info 2) disciplinary info 3) current employing firm, last 10 years history, all approved registrations 4) any felonies, certain misdemeanors, civil proceedings investment related violations 5) pending customer-initiated misdemeanors, civil proceedings, investment related violations 6) written customer complains within last 24 months alleging sales practice violations of $5K or more 7) terminations of employment after allegations involving violations of rules, fraud, theft, failure to supervise

state (blue sky) regulation (NASAA)

states often require broker dealers and their agents to be registered in the state in order to conduct business there, in addition, issuers are required in many states to register their securities before selling in a given state. these rules are established under USA (uniform securities act) which = blue sky laws -the USA are established by the NASAA (north american securities administrators association=oldest international investor protector agency, with focus on preventing fraud) -also created USA -set rules for licensing/exams which includes all 50 states (commissioner/administrator =person in each state appointed by gov setting these rules) and puerto rico/other territories as well, but states can have more stringent rules than those outlines in the uSA (model law) -MAIN GOAL=PROTECT INVESTORS FROM FRAUD

the separate account (annuity)

subject to regulation since it is an investment company product=covered by 1) investment co act of 1940, 2) registered with SEC and 3) must have prospectus delivery -can change between sub accounts (within separate account) with no tax liability (with MF this movement does have tax consequences but no sale charges)

match types with description of process

summary= short form prospectus for MF usually free writing= offering term sheets, emails, press release, marketing materials red herring= preliminary prospectus statuatory prospectus= condensed form of registration=statement with official offering price/effective date

interset bearing treasury bonds

t notes, t bonds, and TIPS

T/F about auction

t: non com bids are filled first t: comp bids determine price f: non comp bids submit Q and YIELD t: lowest price/highest yield clears the auction

term vs serial maturities and level debt service (bonds)

term=entire offering matures at one date serial=bond offering matures over serveral years=several maturity dates. as time goes on, more principal is paid as less i-rates are paid -level debt service= set up so i-rate and principal are set up to receive equal payments over the life of the offering (equal annual payments)

bondholders

the corp using money from investors with promise of paying principal.interest back over the predetermined lifespan of the bond -interest -principal at maturity -liquidation preference over stock holders -CREDITOR status

accredited investors (what are the qualifications)

these are people with more assets/income and can assume more risk. These includes directors, exec officers, firms, and individuals with assets/net worth over 1 mil (not including prim. residence), or those who make 200k (or 300k with spouse) each year and have for the lsat two and expect to continue making that much -can be individuals and inst.

traders --> proprietary trading

trade for the firm without setting price markers like a market maker = no quotes entered. simply execute trades on the quotes made from a market maker

CBOE (Chicago board options exchange) (an SRO)

trading platform for options, stock indexes, interest rates, and ETF -is the SRO for the options market -largest options market in us and is regulated by SEC

settlement dates (5 types, 2 common ones)

unless an exemption is made, they occur as follows (the regular way) - corp/muni securities settle in 2 business days - us government securities/options are t+1 *those are the most common* -cash settlement for any security is same business day (both sides must agree) -sellers option=special negotiation =not earlier than 2 business days after trades, will take some amount of time after -when issued: securities that trades but have no physical securities yet... national uniform practice committee determines settlement

outside brokerage accounts for employees of b/d (FINRA RULE), can employee of one b/d have account at other one? (employee requirements, executing b/d requirements, exemptions)

yes 1) employee requirements: must obtain employers prior written consent, provide written notification of association to executing firm (where account is opened). both must be satisfied within 30 days of employment if opened prior to employment 2) executing b/d requirements -must send duplicate confirms and statements if requested by employing firm -applies to accts for employees spouses, children, or an acct in which you have discretion/beneficial interest as well 3) exemptions: rules don't apply to transactions involving mf, variable contracts, unit investment trusts, 529 plan (mainly bc $ is pooled with others in many of these accounts and there is a manager making active decisions)

price vs yield ex

ytm=7.75% price: 102 coupon: ____ (8, 7.75, or 7.65) what we know is that we are looking for the NY, which is the fixed coupon rate. we also know that this is trading at a premium so the interest rates are down, and the order is as follows, NY = highest, then CY, and YTM is the lowest. so what is greater than 7.75 as an option? 8. CY: 8.45 YTM: 8.25 price= ____ (98.5, 100, 103 7/8) we know that this is not trading at par. we know that the current yield is greater than the ytm, so we know that this is trading at a premium. so the asnwer has to be 103 7/8. coupon=6 price= 95.5 ytm= ____ (5.85, 6, 6.25, or 6.47) what we know is this is this is trading at a discount. we also can calucate the CY = 60/95.5=6.628 * 10 = 6.28 or 60/955=.0628*100=6.28. given this is trading at a discount, the ytm is the highest yield so has to be higher than 6.28 so thus 6.47 is answer.

IPO/follow-on

IPO=initial public offering, primary market, sell some % of the co. and safe some to sell later on usually follow-on=existing company sells equities @ a later date=subsequent offering

retirement accounts (dif types, similarities in those types, exceptions (4) to avoid early withdrawal penalties)

IRA=individual retirement account 2 types: roth and traditional similarties between roth and trad: -amount of contributions per year is up to 100% of ones earned income up to 5500/year (6% penalty for overfunding) -working spouse can contribute to non working spouses = spousal option = can contribute additional 5500 into theirs - if 50 plus, you can contribute an extra $1000 into your account -for both, if you withdrawal before age 59.5, at a minimum 10% is taxed as a penalty on withdrawal amount. in a roth... the first contributions must have been made at least 5 years prior. there are exceptions however.... 1) death, disability, qualified higher ed expenses, or qualified 1st time home buyer distributions (max 10K)

ex, fill in the blank

______ establishes rules to protect privacy of clients confidential info (regulation SP) a privacy notice must be provided to clients when ______ and _______. (opening an account and annually thereafter) the FTC _______ requires financial inst. to create policies to identify identity theft (FTC red flag rules) account statements are sent ____ for inactive accounts and _____ for active accounts (quarterly, monthly) _____ must be send on, or before, setlttment of transaction (trade confirm) customer mail can be held for ______ (3 consecutive months at b/d so long as you have written permission/and valid reason if held for longer) ______ is communication dist to 25 of less retail investors in 30 days (correspondence) retail communication are sent to 25 plus retail investors within 30 days

background checks/fingerprint

back ground checks: FINRA requires firms to perform a search of reasonable available public records to 1) verify accuracy of u4 form (app) and 2) if already registered review U5 form which is the termination form (info regarding reason for term from previous firm) fingerprint: required for all applications for new firm even if you have done one before, if you are applying for a new firm you need a new fingerprint (this extends to people in operations too) and is required for any person in contact with funds, securities, firms books/records

why pay premium for a bond?

bc i-rates offered by purchasing the bond are better than the market can offer/other bonds are being issued at . premium is high enough price to match/be competitive with today's market rates of lower interest

individual options strategies for puts (rights, obligations, strategy, breakeven, max gain, max loss)

buyer: right: put to sell at strike price=sell back to seller at strike price obligation: none strategy: want market to go down (so you can buy it cheap and sell it for more) breakeven: strike price - premium max gain: (strike price-premium) *100 ideally want stock to fall to zero so you are up the full strike price minus the premium... so you can buy it at zero = worst case since the stock is wothless and sell it to seller at strike price so the most you can make is the strike price *100 share BUT also have to factor in wha tyou have paid which is the premium... so you take strike price-premium (since both are per share costs) then multiply by 100 shares max loss: premium (you have this right so you don't have to exercise it... so you can let it expire and thus you are only out the premium you paid) seller: right: none obligation: buy from buyer if they put it to them at strike price strategy: they want the market to go up.... then buyer won't exercise this since it would be pointless to pay 70 dollars for something worth 60.... you would lose money immediately so they keep the premium this way. breakeven: strike price - premium (since you want stock to go up.... but you can handle it to go down the value of the premium since you already pocketed that amount) max gain: premium max loss: (-) of strike price - premium * 100. worst case is that you pay 50$ for worthless stock but you already make the $5 premium so you are losing 4500$ total. which is (50-45) * 100.

regulation t payment date (what happens is no payment is made?, what is freeriding?

customer to broker dealer, this is a regulation of the federal reserve board -cash/margin accounts need it w/in 2 business days of settlement (s+2 or t+4) -broker dealer can't be more lenient than reg t but can be more strict -if trade done in cash account, have to pay in full, can request transfer trade from cash account to margin acct where they may have excess equity -if no payment is made, position is closed out (securities sold) usually next morning= 3rd business day following settlement --> acct is frozen for 90 days (can still trade, but customer pay for all of the trades in advance) -freeriding=investor buys stock, then sell stock, but doesn't pay for purchase (fails to meet regulation t requirements, where you HAVE TO PAY FOR PURCHASE)

income statement

measures profitability: takes gross revenue (sales) minus cost of goods sold= gross profit Gross profit minus operating expenses--> operating income operating income (admin fees/salaries) plus/minus other income/expenses --> taxable income Taxable income minus taxes --> net income or loss keep in mind that corps have their own tax rate... so dividends are taxed at corp level but when they are dist to owners they are taxed again at their income level

debt service

debt service = represents the total of all interest payments over the life of the bond & the final repayment of the principal value at maturity

trading ahead of a research report

ex) research on a particular stock moves from a "hold" position to a "buy recommendation" => increased demand for stock --> increase price so this can be tempting to want to buy before this change is announced. if firm has knoweldge of research it MAY NOT ACT ON IT, by increasing, decreasing or liquidating any position OR ITs DERIVATIVE -cant do proprietary orders until info is publically released, this applies to equity, debt derivates, covered exchange, non exchange securities as well **This is why info barriers must exist between trading and research department to prevent this (trader should not have this knowledge at all but if they do they cannot act on it)

ETFS (alternative investment) inverse vs leverage (2 types) and also active vs passive types). vs mutual fund

exchange traded fund: fixed portfolio product tht trdes throughout the day like a stock... but is actually a fund. so it issues shares (and has ticker like a stock) that represent an interest in a basket of securities which mirror a fund. This is a low cost way to gain exposure to certain sections of the market. shares trade in the secondary market and may be sold short or bought on margin similar to stock. commission is paid to buy and sell. price is determined by supply and demand -there are 2 types: 1) leverage: a lot of risk but better performance and 2) inverse: performance is opposite of fund -can also be active or passive, active is when there is active management by portfolio manager and they attempt to OUTPERFORM the market whereas a passive style is simply attempting to match the market by tracking the index index fund( sub type MF): for comparison purposes attempts to mirror an index, new issue always so in the primary market = will need prospectus, can't buy on margin or sell short, higher fees than ETFs, similar in that it is a low cost way to gain exposure to lot of different types of stocks/market in general. usually can buy at NAV since no load fund. can't employ leverage, forward pricing= once daily like MF

broker dealer - sales (stock or bond brokers aka registered representatives RR or investment advisor representatives IAR)

financial professionals who market bonds, stocks, but also packaged products such as mutual funds to people and institutions

suitability (retail vs inst client)

(for retail accounts) based upon client profile when account is opened, applies to recommended transactions and investment strategy (if client makes own determination=not based on suitability), shouldn't be based on g/l but on profile itself -RR can't place own interest ahead of client... should not recommend product bc it has larger commission need to be based on interest and need of the client (inst suitability) those servicing own account have a reasonable belief that the client is capable of evaluating investment risks by themselves. inst client affirmatively states that it is exercising independent judgment (sign something saying we don't need help selecting, you just execute based on our recommendations)

annuity charges/expenses (4 types of expenses)

(one of the drawbacks) - like MF, have charges and fees that aren't invested and are more expense than traditional MF -no max on sales charge... just has to be fair/reasonable -they are expensive bc they are complicated prodcuts, have investment attributes and insurance attributes, they have life income potential=won't run out of $ hence why no cap on sales charge -like class B MF... the longer you are in the contract, the less you will have to pay 1) management fee: advisor fee for making investment decisions in separate account 2) expense risk charges: charged if expenses are greater than estimated by insruanc co 3) admin expenses: cost of issuing/servicing contracts (bookkeeping, etc) 4) mortality risk charges: a guarantee annuitants will be paid for life even if they lice beyond life expectancies=life insurance co makes up the difference******

private securities transaction that happens if you recieve vs do not receive compensation)

(securities related) =securities transactions that are executed by associated person outside of her association with a member firm including private/public offerings -there are different requirements if compensated or not 1) if compensation is received (includes commission, finders fees, tax benefits, securities, or right to receive securities, options, equity) RR must obtain employing firms written permission/firm must record transaction on its books 2) if no compensation is received=RR must provide written notice to firm detailing trade and must get written acknowledgment of receipt =firm doesn't need to approve/put on records *selling away=violations of the rules=An associated person engaging in private Securities transactions without the employing broker/ dealer's knowledge and consent. This violates the Conduct Rules.

identity theft prevention - FTC red flag rules

(what should firms look for) - firms must create policies/procedures to detect/address identity theft -intent is to protect client assets - confirm activity/transactions are from actual client -use of stock holder info for solicitation: firms are prohibited from using client info for solicitation purposes (issuer likely doesn't know info about specific customer since held in st. name) however permitted if directed to do so/for the benefit of a corporation(if going through merger and the co wants to send specific info to customer themselves, in sum, don't want client to give list of names to corp without authorized reason

new issue rule

***only applies to equity IPOs** -FINRA prohibits member firms from selling equity IPOs to any account in which restricted persons have beneficial interest -oversubscribed= over demand than there are shares available, in secondary market may see price jump as a result -may be tempting for b/d to sell it to itself for employees to be able to buy it or family = easy profit to be able to flip to secondary market -preconditions for sale: the firm must okay the client if they are eligible/the account is eligible for IPO deals can be done written or electronic cannot be done verbally. must verify this once per year to make sure they are still eligible General exemptions: -an account that includes restricted persons, provided their combined ownership doesn't exceed 10% (of all restricted persons total ownership) then they can buy it in that account.. however if a joint account where restricted person owns 50% -> not exempt= restricted to buy, person who works for a limited broker dealer = restricted/limited investment programs -general or separate account of an insurance co -investment companies that are registered under investment co act of 1940, trust fund, publically trade entities (other than b/d and its affiliates), foreign investment companies, ERISA accounts, state and local benefit plans, other tax exempt plans, b/d can purchase shares if they are undersubscribed = can put shares in own account so long as public demand has been met broker dealer makes bona fide public offering but cannot keep any shares for their own account/employees, other industry insiders -issuer directed sales: allow restricted persons to purchase if the associated person or associated persons immediate family is an employee or director OF THE ISSUER, if it is the parent co of the issuer, if the subsidiary of an issuer (ex) your wife works for co. going public, they can buy into own firm IPO even if husbands works at another b/d and if YOUR b/d goes public, you can buy into it too **can always buy into your own co. IPO**

market maker

**applies to equity not bonds** when broker dealer decides to display quotes on a trading system indicating they want to buy and sell at specific prices... required to do so on a REGULAR basis. stands ready to buy and sell at any given time -maintain inventory -these market makers are two sided... indicating a price they are willing to sell at (ASK/OFFER) and buy at (BID) -usually a min of 100 shares at those prices=ROUND LOT odd lot=anything but groups of 100 shares

DTCC vs OCC

**buyer for all sellers and seller for all buyers** DTCC: clearing services, guarantees settlement, completed through computerized system, does not interact with customers JUST FIRMs, stocks and bonds, no counterparty risk OCC: the DTCC for options, options clearing corp, they issue/guarantee option contracts and deals with brokers ONLY

account registrations 3/6 - trust (2 types)

**due to the highly legal process for these accounts, they tend to have higher costs than minor acct but also tend to be more flexible in terms of rules** -need trust agreement -trust=legal arrangement in which individual gives fiduciary control of property to a person or inst for the benefit of the beneficiaries 1) revocable=living=inter vivos tr -person who set up trust can term/change terms -does not decrease estate taxes, but avoids probate if funded, prior to donor's death 2) irrevocable=can't be changed once set up/signed. will reduce estate taxes/avoid probate

retention of books/records, what needs to be held for a lifetime, 6 years, three years?

**first, all records must be maintained in easily assessible place for 2 years** 1) lifetime: corp/partnership documents 2) 6 years: new account forms, POA, muni complains, ledgers, blotters (records of original entry). FINRA has requirement to keep complains for 4 years but MSRB has 6 year compliance rule 3) three year: anything else=order tickets, confirms, statements, u4/u5 forms, employee records and all communications forms, trial balances

agency securities (2 types)

**like treasuries these are exempt from state and fed SEC registration -not direct obligation of the U.S. government, but the idea is that since they created these agencies they won't let them fail=idea is that they are veyr lower risk -quoted at % of par in 1/32 of a point -accrued interest based on assumption there are 30 days in each month not ACTUALy # days like corp/muni bonds -book entry types: 1) GSE (government sponsored enterprise)/non mortgage backed: farming loans specifically, fed farm credit bank=loans to farmers, subject to fed but not state/local taxes 2) mortgage backed

FinCEN (Financial Crimes Enforcement Network), what is BSA?

**treasury department agency that focuses on money laundering** - BSA or bank secrecy act=laws dealing with money laundering, they have a division set up through U.S. dept of treasury called FinCEN -law=BSA, dept that handles BSA=dept of treasury and within dept of treasury=subset FinCEN that deals with money laundering

statutory disqualification (SD) (can a firm still hire you? (eligibility procedure)

**you can lose registration or be denied registration** -this means that you had a CONVICTION (being arrested and indicted are not the same even tho you disclose this) in the last 10 years (even if u4 discloses longer than 10 years) of any felony or securities related misdemeanor such as omitting a material fact in any application/report to SRO or by maintaining business relation with banned person--> - denial or revocation of registration by SEC/CFTC (commodity futures trading) - expulsion or suspension from membership with any SRO (FINRA/any exchange U.S and foreign) what if you have an SD: -firm can still hire you, FINRA can offer firms eligibility proceeding which is the process in order to request permission to hire/continue to employ an SD person. if permitted, regulators require heightened supervisory/monitoring of them bc there was an exception made for them in the first place. if you are registered then commit SD, you're not supposed to be employed with any b/d but can go through this same process

MF underwriter/wholesaler/distributor

*in sum--> able to buy shares at NAV and sell directly to investors or market the shares through independent dealers with who they can they share the sales charge with (wholesaling) this type of relationship where the broker dealer is involved, the broker dealers acts as a conduit between investor and underwriter/wholesaler -market the product line to broker dealer to market to investors -appointed by board, their job is to push the product to encourage broker dealers to sell brand name -receive portion of sales charge for marketing/selling, though most of it is paid to RR so the broker dealer/RR get the majority while the wholesalers gets smaller portion -BUT they may receive an ongoing 12b-1 fee/distribution fee which they can share with RR or broker dealer if they want

fixed annuity

- fixed rate of return, very conservative, likely won't keep up with inflation investment risk assumed by the insurance co it is not a security and it held in the general insurance account (where non securities live)(generally shouldn't lose your money here, very safe), the portfolio is safe, secure, predictable investments, the inflation hedge is poor -may guarantee rate for x number of years then it may change -if company can't earn this % rate to pay annuitants, THEY are responsible for making up the difference=responsibility of insurance co not owner. ****it is a guaranteed contract and the insurance company accepts the risk, owner is promised fixed rate of return**** *safe but no equity component*

exams (what happens if you fail and what are FINRAs confidentiality rules)

- if you fail (SIE or qualifying exam) on 1st or 2nd attempt you must take 30 day vesting period - if you fail 3x, you must wait 180 days before retesting and applies between all subsequent attempts exam confidentiality: FINRA says its a violation to: - remove part of exam from test center - disclosure parts to other people - receive parts from other people - reproduce exam or parts - compromise past/present exam = don't tell others about it

restricted persons include (new issue rule)

- member firms regardless if they are in the deal or not and any employees -this also includes any employees immediate family members if any of the following are true of the situation: 1) material support=25% support of the person's income=spouse/dependent children 2) share a household 3) employee is employed by b/d selling new issue 4) employee has ability to control allocation of the new issue if purchase is made through the family members firm non immediate family members can buy from b/d just not yours -finders and fiduciaries = atty/accountants who were working on deal/person who brought deal to b/d -portfolio managers buying for own person account, DOES NOT restrict them from buying on behalf of the mutual fund -person's who own a b/d including anyone who owns 10% of more

account registrations 7/7 - partnership

- need to see partnership agreement specifying authorized persons -need to see who is managing partner, need to collect their info

customer protection rule (3 key words, control, excess margin securities, customers and one more: customer free credit balance)

- on a daily basis, broker dealers are required to obtain/maintain physical possession or control of fully paid (nothing borrowed, they own them) and excess margin securities belong to customers bc clients entrust b/d with cash/securities - 3 key words: 1) control= good control locations include SEC approved depositories such as DTC=know where their securities are held 2) excess margin securities: = The securities in a margin account that are in excess of 140% of the account's debit balance. Such securities are available to the broker/dealer for debit balance financing purposes, but they must be segregated and earmarked as the customer's property. or the value of margined securities that exceed 140% of a customers debit balance. Reg T requires 50% of value to be deposited. rules say if you want to borrows for ex 50K (meaning you are purchasing 100K) you're required to deposit 140% of that 50K number.... 140% of 50K=70K of your 100K total purchase... 70K goes as collateral to bank you bought 100K, they pledge 70K, excess margin=30K (this is what has to be protected, they lend out 70K to get you a loan of 50K) - Regulation T allows investors to borrow up to 50% of the purchase price of a stock that is eligible to be purchased on margin. (Not all stocks are eligible.) The 50% is known as the initial margin, but it is at the discretion of the individual brokerage firm to decide the percentage amount; for instance, it may allow only an investor to borrow only 30% of the purchase price. After a stock is purchased on margin, FINRA imposes requirements on margin accounts that they hold a minimum of 25% of the market value of securities. Again, a brokerage firm may set its own policy with respect to the minimum percentage as long as it is over FINRA's 25% threshold. 3) customers: any person for whom the b/d holds funds or securities or any onmibus acct maintained by b/d on behalf of it's customers (excludes b/d itself, officers, principals, lender, general partners) customer free credit balance: customer proceeds from sales, dividends, i-payments, that haven't been withdrawn or invested. statements sent monthly/quarterly should let you know about these balances=showing uninvested sales proceeds that you have a right to and they are payable on demand (must include total amount due and its payable on demand)

investment company act of 1940 (what are the 3 types of investment companies)

-identifies 3 types of investment companies: management companies, unit investment trusts, face amount companies -regulates mutual fund and like companies (which tend to pool together money from investors and invest the funds in securities - more than 100 shares, min 100,000 in assets, annual reports to SEC

account registrations 5/7- fiduciary accounts

- person/entity that owes good faith and trust to the other person. documentation is often filed with court in order to get court approval of actions of fidicuary (ex=executor/person representative of an estate and trustee)

exempt transactions from 1933 act (purchaser representative, private placement disclosure doc)

- reg D --> private placement= sale only to sophisticated investors/accredited investors AND a limited number of non accredited buyers (35 to be exact) -not a public offering -you can sell to unlimited number of accredited investors which is officers/directors of the issuer (only accredited for this issue, not for other private placements), institutions (banks and pension funds), individuals who have met financial test (indiviauls with net worth of $1 mil which excludes your primary residence can be with spouse OR must make individually 200K per year for the last 2 years or 300K with spouse) -non accredited investors need to appoint purchaser representative = someone to represent them who is not the issuer and must have enough knowledge to be able to judge investment merit and can't be officer, director, or someone with 10% or more ownership UNLESS related to investor -private placement disclosure doc=offering/private placement memorandum and includes financials, stability, standards, etc. NOT required if all investors are accredited, but if there is one non accredited investor EVERYONE needs to get a copy -these securities are generally restricted=cant turn around and sell them and usually include stop transfer instructions=informs transfer agent you can't tarnsfer ownership until removed -

corp/muni bonds prices can be expressed in terms of points and trade in increments of....

- trade in increments of 1/8, 1/8=.125 * 10 = 1.25 = 1/8 of 1% of par sooo .. 93 5/8 = 93.625 * 10 = trades at 936.25 93 1/8 = 93.125 * 10 = trades at 931.25 rate: 5 1/4, 92 1/2 Decimal: 5.25, 92.5 $ value: 52.5, 925 - 1 point=1% of bond par value or = to $10 -

FINRA suitability rules (3 requirements, which is most important??)

- under main suitability rule = 3 requirements 1) reasonable basis obligation= suitable for someone=a b/d shouldn't recommend a product unless it is suitable for some of its clients 2) **MOST IMPORTANT** customer specific obligation=suitable for THAT client=a recommendation is suitable for a particular customer based on investment profile (not applicable to inst customers) when they say this may be suitable for this client, but not for this one... they are exercising this... they look at the various products available and decide what is suitable for this client 3) quantitative obligation=suitable for client in limited quantities=even if product is suitable for the client maybe shouldn't have 80% of the portfolio in it

forward official communications (two ways to receive this annually, OBO and NOBO, what do they send (2)?)

-1 time per year the co. sends you report -when received in the mail from issuer versus B/D?? this dictates NOBO and OBO - NOBO=non objecting beneficial owner: owners who allow issuers to contact/send communication to them directly - OBO= objecting beneficial owner=owner who will no release personal info to issuers (don't want them to know who they are) so the communication is sent directly through the B/D beneficial owner=investors whose securities are held in their name/recorded on firms books what do they send? 1) proxies: ability to vote....must be immediately fowarded to customer, by signing beneficial owner allows another person to vote on your behalf (as you would if you don't attend meeting). you only have x days to vote 2) forms 10-k (annual) and 10-Q (quarterly). SEC rules=financial info that must be forwarded to shareholders

good delivery of securities (the requirements) and units of delivery for stock vs bonds

-B/Ds transfer agent makes the final determination as to whether a security is in good deliverable form and may be transferred to new owner -good delivery requirements: -properly registered=name of owner matches certificate -properly endorsed certificate=name on front must match signature on back -signed stock power if stock cert. if sent unsigned -CUSIP numbers may be used to identity/clear ***restricted securities are NOT considered good delivery*** why? bc must be accompanied by special instructions Units of delivery: -stock transactions must be delivered in multiples of 100 (round lot) (or can delivery odd lot if identified prior to delivery... bc expected to be in multiples of 100) -bond transaction must be in $1000 units (par value) or annuities adding up to $1000

fair prices/commission for broker dealers (general guidline and factors deciding what is fair and reasonable, & when it doesn't apply (2))

-FINRA has 5% policy... which is a guideline NOT a rule for changing commission, mark up/mark down for charging commission, mark up/markdown -markup > 5% can be justified as well as markdown <5% factors deciding fair/reasonable: -type of security -availability of security (liquid or thinly traded) -price of security (lower price --> higher % markup) -amount of $ involved/how much you are looking to get -pattern of markups (what is firms policy around this what do they usually do, what is the norm/speed limit) -type of client or whatever firm will PROFIT SHOULD BE IRRELEVANT it's ll about current day/market prices NOT inventory costs even though to a broker dealers that's the most important bc they want to make a profit but can NEVER be the justification for mark up/markdown -institutional clients know more than retail clients about fair markups etc so they deserve higher levels of protections (retail) this is the job of FINRA to watch out for when 5% rule doesn't apply for the following: 1) trades involving securities sold by prospectus or offering circular (MF, new issues, variable annuities) there is built in sales load for MF and annuities already AND charge to the underwriter too=don;t want to double up since dealer already has these fees to pay 2) exempt securities include: US gov, muni securities, covered under other rules so mark up rules are dif)

reporting requirements of complaints/other incidents (6 reportable events)

-FINRA requires firms to file info relating to customer complaints/other incidents involving RRs by no later than 30 days from discovery -events include; 1) being subject to customer complaints, involving allegations of theft, missappropriation of funds/securities, forgery 2) having been indicted or convicted of or plead guilty or no contest to any felony or misdemeanor involving SEC violations indicted=still reportable event if not guilty convicted=then becomes statutory disqualification event 3) violating SEC laws or regulations of government/SRO/financial business or professional organization 4) being subject of suspension termination, withholding of commissions, or fines in excess of $2500 5) having been named as defendant by regulator alleging violation of any SEC, insurance, or commodities regulation 6) being defendant or respondent in an award or settlement of more than $15,000 **not all are statutory disqual events, but all are reportable**

fee based accounts vs traditional accounts

-advisory, custodial, transaction costs can all be wrapped into one annual fee 1) traditional accounts: charge on a per transaction basis, assessing a commission on each trade 2) fee based accounts=every fee is simply included in one price, based upon assets in account, steady income made from these accounts -suitability considerations: are services are appropriate given client needs? are fees reasonable given clients trading history? **not suitable for clients who trade infrequently (buy and hold strategists), designed for more active traders**

MF withdrawal plans (opposite of DCA)

-allows investors to receive regular payments from accounts or can say liquidate X shares each month, etc. -minimum account value is required -variety of methods include 1) fixed dollar 2) fixed % 3) fixed time 4) fixed # shares -payments aren't guaranteed for life, when $ is gone, $ is gone ***as RR you cannot advise clients to parcipate in DCA and withdrawal plans at the same time bc sales charged are levied on teh purchase and it makes no sense if you are then just withdrawing the funds

agency securities (bonds) (2)

-issued by gov agencies (backed in full faith by u.s. govt) and government sponsored enterprises, not direct oblgiation of u.s. government but are considered very safe and tend to have a bit higher yield than u.s. treasuries (logic is that since u.s. gov created these they will not let them default) -quoted in 1/32 of a point 1) fed agencies: direct extensions of U.s. gov=backed in full faith includes govt national mortgage association (GNMA) 2) GSE: publically chartered by privatey ownded allow for creation of low cost loans for certain segments of the population. issues securiteis trhough selling group of dealers proceeds go to bank (ex= fed farm credit banks/fed home loan banks) -FFCB: provide funds to banks that make ag loans to farmers -FHLB: provide liquidity to savings and loan inst. that need extra funds to meet demand for money.

financial exploitation rules (2 groups of people who are most likely to be exploited, temporary hold and two requirements if this is placed on account)

-apply to adults who are most likely to be exploited 1) persons over 65 2) any person 18 plus who's believed to have mental/physical impairment preventing ability to protect own interest procedures: -if you see signs of diminished capacity or dementia, firm can place temporary hold on disbursement of funds/securities to prevent someone from taking advantage of it -info regarding trusted contact should be obtained when account is opened (not required, but must make reasonable effort) -if you place hold on the account, you must get ahold of trusted contact temporary holds: can be placed on the disbursement of funds such as funds/securities and transfer of assets from one acct to another (including ACAT) @ same firm BUT NO hold on transactions. if no reasonable beleif of financial exploitation, must still allow for normal bill paying, etc. -lasts 15 business days from initiation, but with enough belief there is a problem can extend for another 10 days when a hold is place the following must happen 1) internal review: when a hold is placed an immediate internal review of the reasons must occur 2) oral or written notification: no later than 2 business days after the hold is placed, the firm must provide oral/written notification of hold to all parties authorized to transact business in acct and trusted contact

methods to decrease sale charge (breakpoint and letter of intent and rights of accumulation (ROA))

-breakpoints: provdided by fund family to incentive investors to concentrate purchases w in a fund name, this is a volume discount, when you invest/buy beyond a certain threshold they will give you a discount (ALL PURCHASES within a FUND FAMILY=within the brand name count toward this)--> leads to lower sales charge *purchases within same family are consolidated to determine sales charge ex: if sales charge =4.5% based on investor investing 60K, NAV=19.61, max offering price=21.32, the fund charges 1% redemption fee, how many shares can investor purchase. we are looking for POP first here.... which is NAV/100-sales charge %=19.61/95.5=.2053=20.5$ per share... and we have 60K soooo we take 60,000/20.5=2926.552 shares (CAN BUY FRACTIONAL SHARES OF MF) letter of intent: if investor does not currently qualify for breakpoint, they can be granted a grace period =we will give you extra time to get to the breakpoint level -13 month window they give you -you can also backdate (MAX 90 days).... to include a prior purchase in this qualificaiton BUT if you do so, however back you backdated it counts toward your total 13 month window ** this is NOT binding, if investor intends to come up with money to invest at breakpoint level but cant there are no penalties, sales charges will just be adjusted to be normal ROA (Rights of accumulation): purchase in fund family by your family=right to add all purchases made from some family of funds by your immediate family as well as fiduciary for single account, trustee, pension/profit sharing plans, investment clubs =ability to reduce sales charges as valye of shares reaches breakpoint

impact of inflation risk

-declining purchasing power=most detrimental to investments that offer fixed payments -inflation=too much money chasing too few goods=more currency/credit beyond availability of goods/services -if bond holder has inflation expectation they will demand certain coupon ... so overtime, this inflation risk is built into coupon/i-rate that bondholders demand -inflation--> increase in interest rates --> decrease in value in securities -and rising prices/inflation diminish the purchasing power of these same securities -equity investments perform better than fixed income with inflation as well as common stock, variable annuities, real estate, and precious metals=hedges against is better

investment advisers act of 1940 (ABC rule for defining AI, which means they regulated by SEC, what are the exclusions (4)

-defines and provides exclusions for firms acting as IA (investment advisors who are regulated by SEC) ABC rule for defining IA: providing advice in securities/asset allocation, operating as a business, receiving compensation for the advice, ex=mutual fund companies and firms that manage wrap accounts (charge fee for service and fee for transactions as one). this also includes firms that manage wrap accounts=charging one fee for advice and transactions -exclusions are available to broker dealers, some professionals (so long as the advise is incidental to their actual profession): 1) broker dealers that receive commissions and are already in the business of doing so as broker dealer=no need to register 2) banks, savings inst, trust co = aready regulated as banks/unless getting more commission = no need 3) professionals, LATE (lawyers, accountants, teachers, engineers) bc advice is incidental to their business BUT if they charge an additional fee just for that advice then they lose exemption/become IA. 4)publishers (newspapers, etc) bc it is general advice, not tailored **purpose of investment company act and investment advisers act is such that mutual fund companies must register with the SEC and the firm that manages the assets must register as an investment advisor

discretionary orders

-discretionary account: brokerage firm can buy/sell securities without the client permission with understanding of what is suitable for the client, the RR can make trade without consent but order ticket MUST indicated this is discretionary, if trade was done with client consent this is not discretionary and you would indicate nondiscretionary -for nondiscretionary accounts the client must advise/at least be aware of everything and this can be 1) solicited: recommend by agent and accepted by customer 2) unsolicited: customer wants to place trade without RR recommendation=self traders, RR not invovled/sometimes may not know

FINRAs AML rule (3 requirements)

-every b/d must have AML compliance program to detect money laundering schemes/suspicious activity - requirements= 1) appoint AML compliance officer, must be identified to FINRA as such and be knowledgeable about bank secrecy act 2) create written policy/procedures including training to detect 3) independent audit function to test programs effectiveness ** no requirements to file report with regulator annually or anything **

MF Sales practice violations (3)

-for breakpoint sale: a violation is when an RR is trying to prevent client from getting breakpoint by failing to disclose letter of intent as an option, recommending allocation of funds across multiple fund families to diversity (prevent accumulation toward breakpoint), fail to let client know they are close to breakpoint -RR has to disclose tax events associated with moving within fund family and also sales charges associated with moving to other fund families=considered new purchase -excessive purchases of class B shares is a volation since these do not qualify for breakpoint.... so shouldn't be recommended large purchases

muni securities: issuring general obligation and revenue bonds (general info/two ways of selecting an underwriter)

-general ob bonds are backed by full faith and credit and taxing abilities of muni issuer -revenue=backed by specific revenue producing facility muni debt=exempt from reg with SEC and don't need prospectus issuing GO bonds: -need voter approval bc backed by taxing powers -have debt limitation = can't add debt beyond debt ceiling issuing revenue bonds: -dont require voter approval since backed by fees for use of facility and service -usually have feasibility study to determine cost, etc. selecting an underwriter (2) 1) competitive sale: throwing bonds out for competitive bids by publishing notice of sale (way to advertise to underwriters) contains relevant details, etc. sealed bids are submitted, and the one that provides the issuer with the lowest interest costs over the life of the bond wins 2) negotiated= issuer appoints managing underwriter to work with and they mutually agree on terms, etc. ** many issuers also have municipal advisor who in addition to underwriter can be separate firm etc. who assist with process)

redeeming bonds prior to maturity - call provisions (call premium, call protection, call types (3), put provisions)

-if a bond offering includes this the issuer can redeem the bonds before maturity, if called, the bondholder gets the full principal and any accrued interest. Issuers like this because they don't have to pay the rest of the interest payments and can take advantage of declining interest rates (call it back and reissue at lower I-rate=less payment obligations). to entice buyers, usually these have higher coupon rates in general -call protection=restriction on how soon the bonds may be called (usually 5-10 years). if the call period runs out and the bond is called, the issuer is usually required to pay additional par value to compensate for early redemption, this additional amount = call premium -call types 1) in-whole=whole issue is called at once 2) partial (lottery calls) meaning some of the issue is being called while others can remain outstanding 3) catastrophe call enacted when bond's underlying collateral is destroyed (ex raising money to build bridge, but flood destroys this... the issue can be called with bondholders paid back with insurance) *** in-whole and partial/lottery calls must be disclosed but due to unlikihood of occurrence catastrophe calls are exempt -put provisions: opposite of call feature, this allows bondholder to redeem bond at given date PRIOR to maturity. yields are generally lower for these bonds since they can be redeemed if interest rates go up

customer complaint

-if client calls RR and complains on the phone this is NOT considered a complaint - complaint is defined as a grievance that's delivered in any written form including letters, emails, IMs, texts (any electronic method) - complaints must be forwarded to a supervisor for review/investigation - complaint riles (must be kept even if no plains exist), including copies are maintained in OSJ (office of supervisory jurisdiction) along with report to indicate action taken to resolve dispute -records are retained for 4 years (FINRA RULE) - FINRA requires that quarterly reports are sent to FINRA to provide satisfaction/summary complaint info (if not complains= no need to file)

actions of the FOMC (how do they increase vs decrease money supply)

-if they decide to increase the money supply and ease credit, the FOMC will buy a ton of u.s. treasuries and engage in repos. when you buy treasuries, you ahve to pay for them sooooo this leads to a lot of money injected into the economy--> increases deposits/reserves -if they decide to decrease the money supply/tighten credit, the FOMC will sell securities and engage in reverse repos. selling securities=$ sent back to FOMC=drain system=less $ available=increases i rate= decrease deposits/reserves -goal=influence fed funds rate

ex i-rates, etc

-increase in i-rates-> purchasing power goes down (bc inflation goes up as well -decrease i-rates--> bond prices increase -real i-rates--> factors in rate of inflation when determining return -high beta--> investment outperforms a rising market and underperforms in a falling market (up 2x for ex in bull mkt but also down 2x in falling market) -low beta--> underperforms a rising market and outperforms a falling market (up/down less than mkt overall)

red flags (if you discover it, you must...3)

-indication of real or potential violation of securities -indications that a problem may exist -SEC rules emphasize that firms must exhibit reasonable supervision/requires supervisors red flag - if you discover it... you must... 1) must investigate situation=learn all relevant facts 2) document the investigation=records must be written 3) pursue investigation to a conclusion --> matters should be brought to resolution which could be that no violation occurred

Regulation M (3 main parts)

-intent = prevent manipulation in secondary market by persons who have interest in outcome of offering of new shares.... so 1) prohibits these parties from bidding/buying stock in secondary market by these participants (b/d and issuer, underwriters, selling group) during time around new issue=restricted period which depends on the size of the co/trading activity - for example, an already public company doing follow-on offering, a b/d may want to increase the price of the stock in secondary market so issuer gets higher price and b/d have easier time selling 2) does allow b/d to remain as passive mkt maker however, since limiting these parties can hurt the stock liquidity, meaning they can bid for stock but not higher than highest independent bid (from b/d not involved in dist) -also permits dist participants to execute unsolicited trades for customers if they want it, you have to execute for them) 3) permits stabilization=bids to support the price of new issue to protect from falling substantially. syndicate can support public offering price by bidding in secondary market to support that public offering price but no higher=prevent new issue from immediately falling in secondary market

debt isntruments (bonds) general info

-investor becomes creditor =meaning they are owed money -you are paid interest semi annually, calculate annual rate and then divide by 2 -priority over stock owners in terms of payout if company goes bankrupt (increase safety of investment) also bc they are a consistent source of income (since i-rates must be paid unlike dividends which are optional/up to board of directors

U.S Treasury - t bills

-issued at a discount and mature at face value, effectively are zero discount bonds -up to 1 year maturity, offered at $100 or multiples of this, book entry form, interest rate=par value paid at maturity - discount -weekly auction usually monday or tuesaday and settles on thursday -quoted on a discounted yield basis meaning for ex (bid is 2.94% and ask is 2.90%) think of this as % discount, so the 2.94% though is a higher numeric value represents a larger discount off of face value and therefore a lower price whereas the 2.90% is a lower number but is less of a discount and therefore higher price (inverse relationship between discount or price and yield)

optioning a margin account (3 components of margin agreement and margin disclosure document)

-margin=leverage=use small sum of money to control some larger amount=subject to regulation T=must deposit 50% of trade value=leverage of 2:1 -increases the customers purchasing power -increase risk of market moves away from you--> increase chance of loss *leverage maximizes gains and losses* -margin agreement has 3 components (2 of which are required and 1 that is optional) 1) credit agreement: (required)=terms of loan, i-rate, how it's computed, when it is charged 2) hypothecation/pledge agreement (required)=B/D borrows funds frm bank to lend to you, bank required collateral which is the stock that the client buys... this agreement allows B/D to use client stock as collateral to get loan from bank to lend $ to client 3) loan consent agreement (not required, but most B/D won't open an account without one): you allow B/D to borrow stock to lend to other people/businesses who are short selling (like what you were doing) since most stock held in st. name this is easy. -margin disclosure document: must be provided to all customers. this explains the risk/responsibility if client has margin account, can lose more $ than is deposited, firm can sell from account without notifying customer, firm can force sale of securities/assets in acct if not paid for, customer has no control over which asssets are sold to meet a margin call, in house maintenance requirement can change without prior written notification to client (this is how much $ you must maintain, firm can have dif requirement than regulator BUT not more lenient) -client is not entitled to extension for margin call

dealer mark up and mark down

-market maker quotes is an inter dealer quote... what broker dealers pay one another -dealers wants to make profit.... so there are price adjustments (mark up and down, same concept as commission) that are built into the price charged to customers (wholesaler vs retail price) Ex: bid=17.05 (what broker would pay) ask=17.15 (what broker will sell for) these are the prices that broker dealers will pay one another. now let's assume a broker dealer factors in a 5% mark up/mark down...= $0.05 so now we have 17 for bid and 17.2 for ask THIS is what the client will pay -client will buy at the ask price and sell at the bid price (always buy at higher price and sell at lower price.... worst in both scenarios)

arbitration disclosure (must include 6 diclosures... and what are 2 things that are not required to be arbitrated)

-means to handle disputes between b/d and b/d and RR and RR, client to b/d etc -your right to sue/jury is waived = you abide to ruling in arbitration -firms must make the following disclosures to clients 1) right to sue/right to jury is waived 2) certain claims are not required to be arbitrated including discrimination/sexual harrassment as well as disputes arising under whistleblower statue (turn in people for major rule violations to SEC) 3) arbitration awards/rulings are final/binding = can't appeal 4) ability to obtain docs may be more limited = dif concept of evidence 5) decisions made by arbitrators don't require explanation 6) arbitration panels may consist of industry/public arbitrators (usually made up of 3 people, if public client is involved majority of arbitrators must come from outside the industry)

account registrations 2/6 - joint

-need info on both owners -both can given instructions -all owners need to sign agreement -checks need to be made out to both owners on the account -2 types 1) joint tenants with rights of survivorship: common for spouses, each tenant has equal ownership and if one dies all assets go to the remaining owner without going through probate, as process of distributing assets it becomes an account in just the surviving spouse name 2) joint tenant in common: decedents portion is transferred to his/her estate NOT to the other owners. common for business partners/siblings. each tenants owns specified amount and if one dies the account CLOSES and the decedents portion is divided by the will of that person and the others keep their portion but not the decedents

3/3 stop order (stop and stop limit orders are on separate card)

-nicknamed a stop loss order bc you stop if from going too far in the direction you don't want it to go may be used to limit a loss (if you long the position) or protect a gain (if you short) -doesn't guarantee specific price -2 types (buy stop and sell stop) -if you long stock=you are bullish, you want market to go up. You fear that stock could fall in value so you need to limit downside risk so you enter stop order below current market value bc if it is going to go down you want to stop that loss) -if you are short the stock=you hope market goes down=fear that stock may increase so you enter buy order above market price which is to limit the upside risk)

t/f MF ex

1) sales charges are based on total investments within same complex of funds (FUND FAM NOT INDIV FUND), T 2) letter or intent allows purchaser over 15 month period be consolidated to determine sales charge, F (13 months) 3) ability to decrease sales charge as valyue of shares reaches a breakpoint is referred to as rights of accumulation (T) 4) use of dollar cost averaging assumes LT growth (F)

passive (strategic) asset allocation (3 kinds)

-not trying to beat the market... assumes markets are efficient/creating an optimal portfolio requires allocating assets based on a clients risk tolerance/investment objectives 1) buy and hold (do nothing): find the right mix and leave it along... minimizes transaction costs and tax consequences (no big capital gains). downside = mix may change overtime and as you age what was appropriate for you then may not be now 2) indexing: maintaining investments in co. that are part of major stock or bond indexes. these try to mirror/match performance of broad index. FEW tax events/rebalancing needs 3) systematic rebalancing: buying/selling assets on a periodic basis. rebalancing every few years keeps portfolio closer to strategic allocation. may result in higher transaction costs as well as tax consequences. formula driven, there's a plan in place

tender offer (type of corp action) (main reason for doing this)

-one entity makes offer to purchase something from you and he will give you cash compensation for it=intent to buy shares from owner @ fixed price for certain period of time -offer can be made from issuer (would happen if they have extra cash and they want to buy x% back of their shares) or third party -main reason=offer typically made to acquire a co. or a controlling position and a seat on the board of directors (may want to buy 20 or 30% of shares @ one time) (this is a third party offer) -offer can be for ALL shares of a specific % -a lot of acquisitions are done this way -shares may only be tendered if an investor is long the stock or its equivalent such as: 1) convertible security (exercise not required), 2) right or warrant (exercise not required), 3) a call option (cant tender with this, only if exercised) *for 1 and 2 the receiving firm exercises them /takes care of them unlike a call option

taxation of retirement plans

-pre tax contributions have zero cost basis, you pay taxes at withdrawal -after tax contributions are part of cost basis thus are tax free at withdrawal -any retirment account earning grow tax deferred = not currently taxable = taxed at some point in the furture -retirement plans will never generate capital gains/losses -tax status of distrubtions: 1) any portion representing pre-tax contributions is taxable as ordinary income 2) any portion representing after tax income is a return of capital and is not taxed (earnings are taxed as ordinary income though) -bc government provides tax deferred growth, when they do tax you they want to tax you at highest rate possible=at ordinary income level NOT capital gains/loss amounts

municipal advisors

-provides advice to or on behalf of municipalities (state, city, council) usually the issuer. usually related to municipal finance offering -municipal advisor is an entity that advices municipalities on bond offerings (middle man between municipality itself and broker firm (underwriter potentially)

securities act 1933 (no approval clause/any exemptions?... will carry on to next cards, issuer liability vs underwriter liability)

-regulates primary/new issue market -requires SEC approval for new issues -purpose: to provide full and fair disclosure so investors can make informed decisions -issuer files registration statement with a lot of co. info, a portion of which is the prospectus (CANNOT be altered) -SEC DOES NOT approve or dissaprove the securities.... doesn't weigh in on investment = no approval clause Any exemptions: yes for 1) certain types of securites and 2) specific types of transactions issuer liability: -issuer is liable if there is fraud involved (untrue statements, etc) AND if they purposely left out information underwriter liability: -they must perform reasonable investigation -due diligence (conduct reasonable investigation/let SEC know if they find anything worth noting)

American Depository Receipts (ADRs) (sponsored vs unsponsored)

-represents a claim in foreign securities though they are held in the U.S. banks located oversees -trade in U.S. exchanges or OTC and pay dividends in U.S. dollars -can be sponsored or unsponsored: sponsored means the company pays a depository bank to issue ADR shares in the U.S. the sponsorship permits the company to to raise capital in the U.S and list the ADR on the NYSE or Nasdaq. the larger ADRs are sponsored. Unsponsored ADR=the company does not pay for the cost of the trading in the U.S. and instead the depository bank issues the ADR (OTC)

state registration (blue sky laws) (what is the model law and who creates the exam?, what are the series 66, 63, and 65?)

-required for many people IN ADDITION to SIE/other registration exams but is based on state law which is based on Uniform securities Act (model law) and exam was created by NASAA=north american securities administration association NOT FINRA -NASAA exams: 1) Series 63 (doesn't vary by state, this tests on model law NOT specific to that state --> so you don't need to pass in every state you operate, do it once but still need to do paperwork to register yourself in other states) 2) series 66 (combines the 63 and 65) for people who have the series 7 3) series 65 is for investment advisors

variable annuity

-risky but growth potential but also a lot of loss potential -risk is assumed by the annuitant -it is a hybrid so it is part security and part insurance -it is held in separate account, not general insurance account -portfolio is held within different subaccounts within this separate account... (similar to dif types of fund within fund family) they are chosen to help meet specific investor needs (investors can move the sub accounts around without tax liability) -superior inflation hedging -you have choices as annuitant as to where to put money, FINRA and SEC say this is a security -equity driven -regulated as state insurance, reg by FINRA as SRO level, and fed regulation from SEC -insurance co lobbied congress bc they wanted products to compete with wall street so they said yes so long as they were to be separated into a separate account AND must give clients prospectus *has equity/stock component and superior inflation hedging*

MSRB (an SRO) ( 2 things you must do if transacting business in muni securities business)

-securities acts amendments of 1975 required that broker-dealers transacting in municipal securities must a) register with the SEC and 2) create their own municipal securities rulemaking board -SRO charged with rulemaking for municipal securities, FINRA enforces -main concerns with standards of professional practice, including broker-dealer qualifications, rules of fair practice, and recordkeeping ****rules do not apply to issuers of municipal securities ***no enforcement abilities, the SEC does this/or another regulator industry *for bank dealers, SEC does not enforce these rules but rather the FDIC, or Fed Reserve, or comptroller of currency

bond pricing (% vs points) (factional prices)

-stated as % of par value, a bond with price of 100/1000 is selling at 100% of its par value, a bond selling at 90 is a discount equal to 90% of par value or $900, price of 110 is premium, 110% of par value or $1100. -may ALSO be expressed in terms of points: each point is equal to 1% of bond's par value or 10$, quote of 99 points = 99% = $990, if quoted at 101 = 101 %= $1010 EX: - bond price = 99 = 99% of par value = $990 price in dollars (discount) - bond price = 101 = 101% % of par value = $1,010 price in dollars (premium) -many bonds trade on fractional prices: 1) corp/muni bonds trades in increments of 1/8 of a point = .125 and 5/8 = .625 2) treasury notes/bonds: 1/32 of a point ex: bond quoted at 93 5/8 = 93.625% or 936.25$

limited partnership (subtype of DPP, direct participation program) (+ and -)

-tax benefit/diversification -limited partnership=subtype of direct participation program (DPP), profits/losses of investment flow through directly onto investors tax form=passive income and losses. -Limited partnership=business venture designed to be tax effecient by passing through both income and losses to investors=try to skip traditional taxation but DONT want unlimited liability=want best of both worlds take away characteristics: 1) flow through of income means no double taxation... portion is taxed as ordinary income, 20% is deductible. losses flow through too which is only product that does this 2) limited liability=LP are only liable for the amount invested and any loans. Not going to lose home or other belongings like in a general partnership if something goes wrong. worst=lost of original investment negatives: tend to be very illiquid, not publically traded=lack of control=when you purchase it it is very hard to get out, LPs hire general partner who makes major decisions so this person's approval may be required to sell, also means lack of voting power, in addition owning this makes tax filing difficult and if tax code changes, some initial tax benefits may no longer apply. *also... partnership has the ability to ask for additional capital in a year or so time and if you can't up your capital you can lose your original interest in the partnership.

telephone consumer protection act(cold calling rule), what are the restrictions? what is required info that must be provided by employee? info re do not call lists (2 ways to be put on)

-telemarketing calls can be made any day from 8 AM to 9 PM local tie of person being called (residential only) exclusions: time/day restriction doesn't apply if the person: - has made any unsolicited inquiry of the firm (customer contacts b/d) -has engaged in a transaction with the firm within 18 months and has existing account (existing client=no time rules=has established business relationship) cold calling info that needs to be provided: - home/employing firm name - firms phone # and address - purpose of call do not call list: -you can be placed on list if 1) you asked to be put on list... within 30 days of you asking you must be put on it and will remain there indefinitely 2) you go to the national do not call list = the FTC list, firms download this periodically to make sure they are not calling **cannot transmit unsolicited ads to people's fax machines either**

MSRB rule g-37 - political contribution rule (What is an MFP) (dif in rules if you CAN vs CANNOT vote in the election) what happens if you break the rule?

-this came to be because it used to be that politicians would throw business at them if they got $ in return (pay for play) -rules addresses political contributions that are made by municipal finance professions (MFP) to persons who can direct muni debt underwriting business (politicians) -MFP=engaged in underwriting, sales, financial advisory or consulting services, research/investment advice that are associated with b/d **RR who recommends muni securities to retail customers are excluded** -this rule places limitation on contributions which depend on if you vote in election or not 1) if MFP can vote for candidate: may contribute up to $250 per candidate per election cycle, to candidates for whom he may vote. can contribute to every candidate running. primary election is considered separate than general election= 2 different $250 payments that can be made 2) if can't vote in election=can't make any contribution when they cannot vote **if you violate ==> 2 year ban is imposed on negotiated underwriting (for your firm) business with issuer. negotiated=when firms are selected to wrk with issuer, your firm can thus still do competitive process to win bid but can't be thrown business anymore**

types of common stock (5)

1) blue chip 2) growth 3) income 4) defensive 5) cyclical

determine time period in registration process to which applies

1) blue sky: cooling off 2) no communication with public = pre registration 3) delivery of red herring = cooling off period (this is the preliminary prospectus) 4) sales confirmed/prospectus delivered: post registration

redeeming bonds prior to maturity - convertible bonds

-way to entice buyers if an issuer has a poor credit rating for ex, they give the investor the ability to convert the par value into predetermined number of shares of company's common stock. the tradeoff=this bonds usually have lower coupon rates. this alters capital structure of issuer as debt is converted to equity -conversion price =price at which bond can be reverted to stock and is SET WHEN BOND IS ISSUED -conversion ratio= # of shares investor will receive at conversion when surrendering $1000 face amount of bonds = par value of bond/conversion price **conversion ratio X conversion price = $1000 always ** -determining when to convert: (you want to compute conversion ratio and then multiply by mkt value of stock by which you will compare the value of your bond, the higher one=determines what you do) depends on what stock is trading at compared to underlying value of bond (ex, you have bond convertible at $40 and the bond is trading at 85% of par. The same co. stock is trading at $35 per share.... soo if you convert you will have 1000/40=25 shares X market price of 35=$875 value. if you keep the bond (85% of par) you have a value of $850. +/- of convertible bonds: + : co. can borrow $ at lower rate (offer lower coupon) since the convertible feature is attractive to investors they accept the tradeoff, and even if stock isn't doing well... the investor is protected bc the bond still have value. -: when bonds are converted --> increase in outstanding stock shares--> adjusted balance sheet for issuer as more equity as opposed to debt=deleverages. but this released the debt obligation (keeping in mind dividends are voluntary & no $ owed at maturity) - force conversion: many convertible bonds are callable and if they are called and the value is less than conversion value you could be forced to convert or accept less value

basis point=

.01%, so there are 100 basis points in 1%, so yield changes are referred to in these small increments, 6--> 6.25 yield = 25 basis points (helpful to think of this as .06-->.0625, full percentage would be to .07, only went quarter of the way or quarter of 1% so 25 basis points)

t/f check in mf sales

1) 12b-1 fee = annual fee charged against fund assets to finance advertising (T) 2) a no-load fund cannot include a 12b-1 fee (F) it can but is restricted at .25% 3)redmeption fee is an additional sales charge assessed on certain sale (F) this is an ongoing fee not sales charge 4) MF expesne ratio will decrease if assets under managament increase (T)

2 types of corporate retirement

1) 401K 2) profit sharing plan 1) employees can elect if they want to contribute themselves, this amount is pretax=zero cost basis=taxed upon withdrawal. contributions are subject to max annual amount, employers may match contributions but are NOT required to do so. matching may be based on a profit sharing plan 2) contributions are not mandatory, but discretionary decided on by board of directors. contributions are subject to max annual amounts, **allocation of contribution to employees is based on a pre determined formula -an organization-wide program that distributes compensation based on some established formula designed around a company's profitability

economcic terms (4 - GDP, CPI, INflation, deflation)

1) GDP: gross domestic product, measures output produced domestically of goods/services in US. this is a big picture number, key aggregate measure of economic activity 2) CPI= measures inflation=change in price of goods purchased by typical consumer. increase price=bad for bondholders since they wait a long tie to get their $--> decrease in purchasing power so equity is a better inflation hedge 3) inflation=too much money chasing too few goods --> increase prices of goods/services **high inflation usually accompanies high int-rates since Fed wants to slow inflation/economy when there is high inflation** 4) delfation: falling prices often caused by decease in supply of $ or credit (i-rates tend to trend downward with this) *investors will look to calculate real rate or interest=adjusts for inflation/deflation

education savings plan (CESA and 529)

1) CESA= coverdell education savings account -designed mainly for k-12 but can use it for college as well (so for private education at any level) -can only contribute 2K annually per child up to their 18th birthday -contributions are with after tax dollars and are NOT deductible -earnings are tax free if used for qualified education expenses=grow tax deferred -if you make more than $x/year you aren't eligible to have this account type *funds must be used by child's 30th birthday and if not can be transferred to other relative* 2) 529 plan -can be used for k-12 but due to higher contribution limits, is meant for college -nvestor set aside $ and select between different mutual funds, grow tax deferred and any earnings grow tax deferred AND can be taken out tax free if the money is used for the right purposes, doesn't limit schools you can go to like the state tuition plan. -funded with after tax dollars -most investors choose to fund one from own state.... if you purchase plan in the state in which you don't live, you may be subject to state tax, if you bought in your own state you are exempt at state and fed level... - money used in one state plan can be used in another state -max contribution=15K per year to avoid gift tax (this is doubled for married couples), OR you can front load five years of contributions so 75K up front or 150K per married couple (for people who haen't contributed enough yet or are just opening account adn kid is of age) -withdrawals that are qualified (tuition, books, room/board) can come out tax free. for grades k-12 there is a max withdrawal of 10K **** 529 plans remain property of donor not like an UGMA or UMA which become property of child when they are of age... so with this plan you can use one kids plan on another kid if one got full scholarship, etc....

1) FINRA investor edu/2) expungement

1) FINRA investor edu rule requires firms to provide customers with following info on annual basis - FINRA broker check hotline # - FINRA website address - statement that an investor brochure is available which describes broker check 2) expungement = process by which customer dispute info is removed from RSS CRD (central registration depository) record. - claim must be factually impossible or erroneous - RR could not have been involved in the investment related sales violation - claim, allegation, info is false

idenfiying info t/f

1) b/d must verify identity of customer prior to opening account (f) can happen after 2) an SAR is filed for all cash transactions equal to or greater than 5K even if not suspicious (F) 3) bank secrecy act required report to be filed for all cash > 10K during one business day (T) 4) all transactions must be blocked if customers appear on OFAC list (T)

LP example fill in the blank

1) LPs pass through ______ to investors (income and loss) 2) GP must invest no less than 1% in partnership 2) LP ______ have a fiduciary responsibility to partnership (DO NOT) that is job of GP 3) LPs generally avoid registration by offering securities through _____ (reg d offerings) 4) ______ is considered the riskiest real estate program (raw land) 5) overbuilding is a risk in _______ LP (new construction) 6) riskiest oil/gas program is ______ (exploratory)

return on bond investments (4 main types of yields)

1) NY - nominal yield = coupon rate=annual return 2) CT - current yield = annual interest payments ($ value)/current market price NOT purchase price 3) YTM- yield to maturity=basis=total yield: Total yield includes the following: semiannual interest rate payments, interested earned from reinvesting interest or coupon and the gain or loss you receive at maturity depending on if you bought the bond at a premium or discount 4) YTC- yield to call= an investors yield if the bond is called at par. only relevant is two things are true, 1) the bond is callable and 2) entire issue is callable, whole call -for callable bonds, you always quote the LOWER of the YTM and YTC=yield to worst -if trading at par, all 4 yields are equal, if trading at discount YTC is highest bc it is always better to make money quicker... and not wait 30 years till maturity so ytm<ytc (you would then use ytm since lower) and vice versa, if trading at a premium, always better to lose money over a longer period of time so ytm>ytc yield to call has the lowest yield in this case (use ytc since lower) at discount: ny--> cy --> ytm --> ytc (highest) at premium: ny--> cy -->> ytm --> ytc (lowest) ex: yield: 8, 9, 6.5% bond price: 1000, 1125, 812.5 calculate CY: 80/1000=.08 or 8%, 90/1125=8%, 65/812.5=8%

t/f corp action

1) OBO, all communications comes from broker dealers (T) 2) NOBOs don't allow issuers to contact them directly (F) 3) B/D may charge an issuer when forwarding proxies (T) 4) B/D may charge customers a fee when transferring securities (T)

options t/f

1) OCC issues/guarantees all contracts and deals with broker dealers not customers (T) 2) trade settlement between broker dealers and the OCC is the same business day (F) it is T+1 and for broker dealer to broker dealer is t+2 3) equity options expire at 11:59 PM on ET on third friday of exp month (T) 4) index options provide opportunity to hedge against movement of the market, rather than movement of specified stocks (T)

t/f account suitability

1) SEC requires a b/d to maintain SSN and DOB (T) 2) only a b/d must be registered in clients resident state, not RR (F) 3) suitability is NOT based on g/d (T) 4) suitable recommendations are never considered excessive (if suitable, there is a limitation on how much that client should have) F

t/f exams

1) SIE must be taken before by all employees (F) 2) orders can only be accepted/entered by RR (T) 3) RR are required to sit for 2 exams (T) 4) individuals who fail on exam on 2nd attempt must wait 30 days (T)

other types of U.S. Treasuries (2)

1) TIP: teasury inflation protected 2) T-STRIP: separate trading registration interest principal securites

t/f incomes statment & assets/liabilities

1) balance sheet equation is total assets=liabilities + shareholder equity (T) 2) accounts receivable is considered a current liability (F) this means that someone owes you 3) paid-in capital is part of shareholder equity (T) 4) in order to determine co earnings per share, its income statement must be examined (T)

classification of stock (ways they are typically sorted) (5)

1) based on size (large, mid, small cap) 2) type of issuing company 3) assumed risk 4) expected return 5) correlation to business cycle

orders t/f

1) a day order thats not executed on specific day will be carried to next day (F) 2) buy stop at 17$ will be triggered if stock trades at 17 or below (F) 3) sell stop at 37 will be triggered if stock trades at or below 37 (T) 4) a GTC order is adjusted if underlying stock is the subject of a stock dividend (T)

t/f annuity

1) accum units are purchased after tax and grow tax deferred (T) 2) withdrawals are 1st considered a part of cost basis and not taxable (F) comes from income first so they are taxable 3) death beneficiary gets greater of cost basis or current value (T) 4) death benefits above cost basis are tax free (F) ****cost basis=original contribution***

how broker dealers function recap

1) agency transaction: earna commission, buy/sell for someone else/ agent helps you buy/ sell a house... but ultimately if they can't help it is still your house...=they have no risk. but they earn a commission for this work if they are successful. 2) dealer: principal trades executed by dealers and they charge markups/mark downs. the dealer buys from someone looking to sell and keep in your inventory and if can't sell, they assume the risk

2 types of exercising of an option

1) american style= option can be exercised at any time up until expiration (think americans can do whatever they want). true of all equities on us exchanges 2) european style=can only be exercised on day of exp. index/foreign currency options can be this type

comp for broker dealer, investment advisor,

1) broker dealer receives $ bc of transaction based compensation (broker receives commission) 2) investment advisor charges fees for managing portfolio, usually based on assets under management

t/f

1) buy/hold strategy may result in portfolio drfit (T) ( over time you may see increased % of certain stocks based on relative performance of each asset) 2) indexing is utlized to take advantage of market inefficiencies (f) (believes market is best/efficient 3) sector rotationwill try to ancitipate next move in business cycle (T) 4) $ cost averaging --> realized profits on the investment (F)

options t/f

1) buyers of calls are bullish (want mkt to go up) (T) 2) sellers of calls are bearish (T) (also seller usualy makes money if stock stays at level since time value erodes away) 3) breakeven for seller of a call is trike price minus premium (F) 4) breakeven for buyer of a put is strike price + premium = F 5) max loss for buyer of a call = premium (T) 6) max loss for buyer of a put is premium (T)

retiring debts prior to maturity (2, call and put provisions)

1) call provision= issuer can call back bonds prior to maturity. used when i-rates fall since they can reissue and have less irate obligation. similar to refinancing, you can pay lower rate so they call in bonds and reissue at lower irate. can be 1) whole or partial/lottery call (random lot is chosen) -call premium= amount above par issuer will pay to call in bonds since investor will usually receive a premium since the call price is a premium -call protection=period of time when bonds cannot be called -why buy these? higher yield = comp for having this feature also call protection and call premium offer protection 2) put provision: bondholder can put it back to issuer... do it if i-rates go up bc they can get better return elsewhere, companies will issue these bc investors will accept lower yield bc of it

stop/limit order ex

1) can be used to hedge a long position (sell stop)=mkt price of lower 2) once activated may not be executed (stop limit order 3) once activated it is immediately executed (stop order) 4) can be used to hedge a short position (buy stop)

MF types of classes (3)

1) class A shares=front end load=sales charge is paid up front, cheapest to own over a long period of time, 12b-1 fees are low or none, breakpoints are avilable for large purchases. total investment less sales charge is directed to the portfolio, not all $ goes to work 2) class B or back end=contingent deferred sales charge=pay later=all money goes to work but if you get out too soon==> more charges, since the back end charge decreases for the length of time that you are holding it. assessed at time investor redeemds/liquidates=pay charge IF held less than 6-8 years usually, if held longer no charge. appears superior to front end, why would you wnt to pay all that money up front? but back end funds have higher ongoing fees AND SEC requires back end funds to convert into class A overtime. 12b-1 charge is higher than with class A, no breakpoint. 3) class C=best for people with uncertain time: can have front or back end load or both, higher 12b-1 fees than class A and about the same as class B, no conversion to class A

clearing firms/introducing firms (omnibus vs fully disclosed accounts)

1) clearing firms: many smallers firms will hand off all of part of this process bc it can be expensive and a lot of initial investment costs -aka full-service firms -they have many more customers than just small broker firms, they also serve hedge funds, investment companies, etc. 2) introducing firms: broker-dealers that do not do their own clearing operations, the clients of these firms actually have their securities held at the clearing firm from which they receive statements/confirms other vocab: fully disclosed accounts=when the clearning firm has all client info and is responsible for all paperwork/ets up account at the vlrstninh gitm omnibus accounts=when the clearing firm only does clearing, the introducing firm in this case has their own back office/operations and will not provide client account details to the clearing firm. does NOT hold specific client info

ex

1) client who buy/sell without paying reg T requirement commit _______ viiolation (freeriding) 2) coordinating price quotes/transactions, delaying reporting of trades, sharing info about customer orders are violations of _______ (anti intiidation/coordination) 3) ________ refer to process of inserting 3rd party between customer and best market (interpositioning) 4) ______ involves purchase or sale of sercurities using material non public info about issuer to make profti/loss (insider trading) 5) the ________ prohobits member firms from selling equity IPOs to accounts in which a restircted person has a beneificial interest (more than 10%) (new issue rule) 6) financial exploitation rules apply to _______ who are most likely to be exploited (specified adults)

ex, fill in the blank corp action

1) combo of two companies=merger 2) an interest to purchase shares of another owner=tender offer 3) shareholders receive shares of a buinsess unit of a co=spinoff 4) one co. assumes control of another=acquisition

Two types of equity securities (basic info)

1) common stock: traiditional form of equity, paid out last if bankruptcy (considered junior), receive dividend only after bondholders are paid interest and preferred stock holders are paid dividend 2) preferred stock: considered a senior security. first payout is secured creditors, then unsecured creditors, then preferred stock owners, and lastly common stock owners

definitions of firm communication to client (3 types)

1) correspondence 2) retail communication 3) institutional communication 1) written or electronic communication that a member firm distributes or makes available to 25 or FEWER retail investors (prospective or existing) within any 30 calendar period). subject to review/supervision but NOT approval . this is the day to day stuff brokerage firms do, emails/phone calls, etc. 2) written or electronic communication that firm distributes to 25 OR MORE retail investors within 30 calendar day period. often subject to pre approval by principal and file with FINRA. this is likely website, advertisements, sales literature, presentations 3) written or electronic communication that a member firm distributes or makes available only to inst investors (no retail investors), subject to reveiw/supervision but not approval

t/f cost basis and capital events

1) cost basis is = to amount paid for a security minus commission, F 2) sale of security held for more than 1 year results in long term capital gain and loss, T 3) holding period of a security is measured from trade date to trade date, T 4) any amount of original investment received by an investor is considered return on capital, T

ex investment risk

1) cost of importing goods is increasing (when foreign currency rises/falls compared to dollar)--> currency risk 2) mortgage backed securities are maturing early--> prepayment risk 3) new leadership assumes control in foreign country --> political risk 4) government changes tax codes --> legislative risk

the maloney act of 1938 (3 important events)

1) created non-exchange SRO, so NASD (national association of securities dealers) was created in 1939 to self regulate the OTC market 2) 1975 this act's scope created the MSRB (municipal securities rule making board) 3) in 2007 NYSE and NASD merged member regulation and created FINRA

types of preferred stocks (5) cnbcc

1) cumulative 2) non cumulative 3) participating 4) callable 5) convertible

classification of stock (4) growth, value, defensive, cyclical

1) cyclical stock = has ups/downs with business cycle like housing/auto/construction. some investor may look to buy these at trough stage then wait hoping that the economy will improve and they will have gains. these companies usually manufacture products we need a loan for = big ticket items=do well during expansion adn bad not during expansion 2) defensive= would likely pay a lot of dividends. these are more durable=not subject to swings and do a lot better during contractions. some ex are utility, personal care goods, electricity, tobacco, alc, cosmetic, food, pharmaceutical=every day items/essentials 3) growth stock= usually smaller companies growing @ rate greater than economic growth rate. usually are co in early stages=will likely not pay dividends bc they usually reinvest earnings to continue to grow[little dividends to pay to investors. riskier than other stocks but offer greater potential for appreciation 4) value stocks: stocks that trade @ lower prices relative to issuing company fundamentals. risk=investors may ignore these companies. investors in these stocks are considered contrarian bc they go against general belief/prospect of given company bc they believe the co has fundamental worth=may not be good time now but believe there is a lot of underlying value that market will come to eventually realize

ex fill in the blank

1) describes responsibilities firm must follow to conduct business = written supervisory procedures 2) result of being convicted of felony within previous 10 years = statutory disqualification (can deny/revoke registration) 3) doc that must be filed with CRD fora person to become registered = form u4 (also fingerprint card) 4) must be completed on a person's second registration anniversary and every 3 years after = regulatory element of CD

return on equity investments (2 main ways) and 4 important dividend dates

1) dividends 2) capital appreciation 1) declaration date: BOD says we will pay a divdident of $x at some future date, this is an announcement 2) payment date: set by BOD, date dividend is distributed 3) record date: set by BOD, determines for ownership purposes, to receive dividend, you must be an owner on this date (ownership occurs 2 days after payment=t+2 settlement, so settlement day). for buyer to receive dividends, transaction must settle on or before record date. 4) ex-dividend date: NOT set by BOD but is function of settlement date. this literally means without dividend. = when stock began to sell without the dividend = one business day before record date, on this day the price of the stock is discounted by the value of the dividend ** cash transactions/cash trades=settlement is same day=you become owner same day**

ex t/f options

1) due to high risk in options trading, a customer is required to provide any info requested for acct to be opened (F) 2) principal must approve a discretionary order before it's executed (F) this can happen at time of order, auth to open account has to happen by principal prior to 3) full trading auth allows cash/securities to be withdrawn from discretionary account (T) 4) if client specifies, security, Q, buy/sell the broker can determine when to execute on that day (T)

retirment t/f

1) erisa requires plans to allow all employees who are at least 21 and have one year of full time service to be eligible to contribute to the plan (T) 2) dist. from retirement plans as a result of appreciation of securities are taxed as capital gains (F) 3) an employee must be vested to receive benefits of the employer matching contribution in 401K (T) 4) contributions to profit sharing plans are decided by board of directors (T)

life of an option (1 of 3 things happen after you establish an option position)

1) expire worthless: option is at or out of the money and you let it expire bc no incentive to exercise option. seller gets max gain and buyer gets max loss 2) option can be exercised: buyer does this /has right since they paid premium 3) option can be liquidated: trade your way out of an option=close out position, you can sell it if you bought it and if you wrote/short it, you have to buy it back to close out the position

what are they investing in.... types of LP (oil/gas programs, 4 total)

1) exploratory=riskiest=looking for oil where none has been found before=called wild cating=high risk with high potential reward 2) developmental: safest of first 3=drilling near existing field/area it has been found before (proven reserves) 3) balanced=middle risk=combo of exploratory and developmental 4) income=safest overall= purchase of existing wells/already in production creates immediate cashflow, we know what we are buying

other types of investment companies

1) face amount certificate copmany (FAC): issue debt certs, promises face value at maturity or surrender value is presented =zero coupon bond. 2) unit investment company: no portfolio turnover since it is constructed and then left alone=remains fixed for fixed for the life of the the trust +: transparency, you know exactly what is it it and is cheaper and more tax efficient since no turnover=not as much g/l that would be passed along to investor to pay also no high managemet fees (referred to as supervised not managed), ownership considered as shares of beneficial institution (SBI)

ex fill in the blank

1) fed reserve board changes/provides lending through_______ (discount rate ) 2) _____(reg t) is rate used by FRB to control extension of credit by b/d 3) FOMC will increase money supply when it ____ (buys securities) which will ______(increase) dep/reserves 4) the ______ (reserve requirement) dictates amount member banks must keep in deposits 5) ______ (increase in i-rates) in the US generally leads to strong dollar (foreigners want to buy US treasuries when i-rates are high (=good coupon) and to do this they must buy US dollars first so the two move hand and hand usually) 6) balance of trades tends to become increasingly favorable with a _____(decrease in the value US dollar) relative to foreign currency (lower cost of goods for foreign investors=US exporter does more business)

underwriting commitments (5 types of underwriters)

1) firm commitment 2) best efforts (2 types, see below) 3) best efforts all or none 4) best efforts mini-maxi 5) stand-by 1) broker dealer is responsible for any unsold shares the syndicated buys the entire offering, syndicate takes down the entire offering, the syndicate acts as a principal in this case as they are dealing from their own account, if can't sell they retain in their own inventories 2) think of this as selling a house... the agent helps you but if they can't sell your house it still belongs to you at the end of the day so the syndicate does its best to sell them but the issuer ultimately is responsible for unsold shares, the syndicates act as an agent in this case bc they don't take on a financial commitment 3) investor's $ is temporarily held in escrow account until contingency is met which in this case meaning all shares are sold. if all are sold then the $ is released to issuer, if deal is canceled bc not all are sold then money is returned to the investor. If can't sell the entire issue the entire issue is canceled. the issuer is responsible for unsold shares. the broker dealer acts as an agent in this case 4) min amount must be sold for deal to go forward... set in terms and if can't reach threshold=deal is canceled. the unsold shares are responsibility of the issuer and the broker dealers act in an agent capacity 5) syndicate stands by to buy any shares not bought by shareholders in a rights offering (when companies give shareholders right to buy new shares @ discount to maintain owner %) = type of firm commitment underwriting. the syndicate is responsible for unsold shares and they act in a principal capacity

common stock (& rights of common stock owners (5)) -cumulative vs statutory voting

1) first stock a corporation issues 2) most widely issued type of stock 3)basic unit of corporate ownership -has a par value for company financing but that has nothing to do with market value rights of common stock owners: -right of inspection: can look at the books and records, usually receive an audited report -right to vote: can attend shareholder meetings and vote on important issues including election of members of board, m&a, if stock is to be split. DO NOT VOTE ON WHETHER CORP SHOULD PAY CASH OR STOCK DIVIDENDS. all dividend decisions are made by board of directors. number of votes available is determined by the number of shares the person owns. -statutory voting=shareholder is given one vote per share owned per voting issue=beneficial for larger owners -cumulative voting=multiply number of shares they own by number of voting issues --> total number of votes they can cast in any manner they want, favors minority voters (each seat on the board that is available represents 3 voting issues). ex. if 3 board positions are available and someone owns 1,000 shares, if there is statutory voting then they can cast 1000 per issue, so each candidate can receive 1000 votes but no more (and not all candidates need to be voted on). if use cumulative voting then they would have 3000 votes that they can disburse in any way to the candidates. -right to receive dividends: portion of company's profit that can be paid out -right to evidence of ownership: right to receive stock certificates as proof of how many are ownded, transfer agent, name of corp, owner, signed by corp. officer. -right of transfer: can transfer shares by selling them, gifting them, etc. some restrictions apply such as when they got them before the IPO or if they were given as part of work compensation = RESTRICTED

t/f stock splits

1) forward or reverse split changes the total value of securities in portfolio (F) 2) after a 1 for 5 stock split, an investor who owns 500 shares will now own 100 (T) 3) after a 3 for 2 stock split, an investor who owned 200 will now own 300 (T) 4) after a 5 for 4 stock split, 100 shares @$50/shares will equal 125 shares @ 40 (T) 100*5/4=500/4=125 $50+4/5=200/5=40

alternative packaged products (2 types) - hedge funds and private equity/venture capital funds

1) hedge funds 2) private equity/venture capital funds 1) very aggressive part, marketed to very wealthy investors/accredited investors. -does not fall under investment co act of 1940 so they can perform certain actions that others cannot... like using short stock, derivatives, leverages, illiquidity (may not be able to get $ out = gaiting provisions, generally there are a lot of restrictions on withdrawing money) -does not publish NAV on daily basis 2) similar to hedge funds in the method of raising capital through sale of limited partnerships under Reg D exemptions. -private equity=take existing business and attempt to improve it and resell it at a higher price. -venture capital funds: take small start up, fund it/help it grow then some day flip it or make it public -both aimed at wealthy investors under Reg D exemption like Hedge funds, they can bear more risk -both are unregulated and have limited trading opportunities

T/F REIT

1) hybrid reits invest in both mortgages and properties (T) 2) REITS are not taxed on income if they distribute a min of 90% (T) 3) their shares are exemplt from registration requirements of SEC 1933 act (F) 4) shares are not traded in secondary market and are redeemed by issuer (F)

why bond prices fluctuate from par (2)

1) i rate risk: inverse relationship between i-rate and price of bond. when i-rate increases other bonds are issued with higher rates of return thus already issued bonds have to be discounted to be copmetitive, must be discounted enough to match increase in irate. since bond was issued, if i-rates go up price of bond will go down to make it more attractive/comparable 2) credit risk: risk that company won't be able to pay back investors... we use credit rating agencies to tell us this.. more risky the company usually higher the yield/rate of return to compensate. return=risk free rate + premium for taking risk (general rule of thumb) -lowest risk=fed gov/treasury (will have lower yield) can be either discount or premium

international economic factors (interest rates and balance of trade)

1) i-rates: there is an inverse relationship between the U.S $ supply and foreign currency if US $ is strengthening others are weakening relative to US $. if i-rates increase a lot in the U.S, foreign investors would want to buy treasuries but they would first have to buy US dollars =why we see with increasing i rates that value of the dollar goes up as well=generally move in the same direction 2) balance of trade: system of recording all of a country's economic transactions with rest of world over specific period (looks at who has surplus, who has deficit, etc). - favorable balance of trade=decline in the dollar relative to other currencies=when us exports more than it imports (this makes us goods cheaper to foreigners so they buy more from us) -unfavorable balance of trade= increasing US dollar and US imports more than it exports (since foreign goods are cheaper) how could the value of our currency impact trade balance... a decreasing value of the US dollar--> cheaper for foreigners to buy products. if Us dollar is increasing--> foreign goods are cheaper to US importers... soo US exporters prefer lower valued US dollar making their goods cheaper to foreign investors

t/f continue ed eetc

1) if allowed thru an eligibility proceeding, a statutory disqual person may be hired by the firm (T) 2) form U5 provides reasons for term if previously RR (T) 3) only RR is subject to fingerprints (F) 4) an RR who is serving in the military is still subject to continuing ed

retirment t/f

1) if indiv has earned income he may contribute to trad IRA (T) any one can have and contribute to one doesn't matter income level... only at certain threshold can you make contributions deductible 2) RMD must be made from roth after age 70.5 (F) 3) earning can be withdrawn from trad/roth IRA without penalty for 1st time homebuyers (T) 4) qualified dist from a roth are tax free (T)

MF board of directors

1) independent, investment co act of 1940 required majtority to be independent parties 2) set agenda for fund 3) protect shareholders 4) elected by and responsible to shareholders 5) deals with policy and admin related matters, and hires other parties invovled such as bank, transfer agent, etc 6) DO NOT MANAGE but do set agenda

customer account registrations - 7 basis types

1) individual 2) joint 3) trust 4) custodial (minor) 5) fiduciary 6) corporate 7) partnership

common stock owners have the right to...

1) inspection of books (co. statements, etc) 2) right to vote on election board/authorized shares NOT ON DIVIDENDS 3) evidence of ownership (certificate usually in street name) 4) dividends (entitled but no guaranteed) 5) transfer of ownership (secondary market)

exercising an equity option (process)

1) investor tells broker dealer (you never go back to the person who shorted it to you bc they may have closed it on their end, et... may no longer be in existence so we don't attempt to rematch up with the original party involved 2) broker dealer tells OCC who then checks records to see what other broker dealers are short the specific option. once they find dealers with this they use RANDOM selection to assign to one of many dealers who are short this position 3) broker dealer chosen may have several investors that are short it and they can use ANY OPTION THEY WANT to match up the option contract... can use random, FIFO, or fair/equitable methods 4) the two brokerage firms now exchange with one another and is treated like normal stock settlement so t+2

ex for exemptions

1) investors must be residnets of the state (147) 2) sales are limited to max # of non accredited investors (reg D) 3) non resident cannot purchase stock for 6 months after last sale of offering (147) 4) an offering memorandum is the disc doc (reg D) 1) rule 144= sales of restricted and control stock 2) rule 144A=QIB 3) rule 145=reclassification of securities

t/f MSRB rule g-37

1) rules apply to all muni registered reps (F) only muni finance professionals 2) a $100 contribution to a candidate for whom a MFP cannot vote is acceptive (F) 3) $250 contribution to candidate for whom an MFP van cote is acceptive (T) 4) violation ==> 2 year ban on negotiated underwriting business (T)

t/f regulation m

1) it permits bids/purchasing by dist participant (F) 2) allows for passive market making (T) 3) permits stablization of a new issue to protect its price from falling substantially (T) 4) was created to prohibit manipulative conduct by persons that have interest in outcome of offering (T)

economic indicators (leading, coincidental, lagging economic indicators)

1) leading= indicators that occur before something has actually happened - a hint of what is likely to occur, some examples are: building permit # increases (can predit that there would be more construction--> spur economy), stock market is a good indicator since it is always looking forward bc is it based on investor belief=may get better before it actually is since that is investor expectation, claims for unemployment insurance, manufacturers new orders, maturity of bonds/irate spreads=ideas about what bondholders thing of economy) 2) coincidental=mean teogether/same=occuring RIGHT NOW in the economy=heartbeat of economy=guage of how we are right now. examples are payroll, production, personal income less transfer payments 3) lagging econ indicators: these take time to catch up examples are CPI (prices may take a while to react), average prime rate charged by banks, average duration of unemployment

municipal fund securities (annuities) 3 types

1) local government investment pools (LGIP) 2) state tuition plan 3) 529 Plans

t/f ex

1) local govt investment pools are investments for muni entities (t) 2) prepaid tuition plan allows individual to decided to have $ invested... (F) 3) 529 plan allows investors to front load with 5 year worth of contributions (t)

sell stock order exs (trigger price vs execution price)

1) long the position RST has risen in value so you have an unrealized gain but you are scared of it going down so you get a sell stop=at stop price or lower it is executed, so you sell 1000 RST at 30 stop -once activated it become market order which is executed immediately but no one price is guarnateed (can be executed at price above or below) -the 30$ is not guaranteed, cant lock in price, hope you get around this 2) you bought 1000 ABC at 34m you enter sell stop at 30 -today's it has traded at 30.5, 35, 30.7, 30.38, 29.87, then 29.85 -trigger price=first trade @ or below the stop price, doesn't have to hit 30 exactly, but must at least be lower) so in our ex the first price was 29.87 -execution price=whatever the next trade is after the trigger.... so in this case that was 29.85

underwriting... participants that have liability for unsold portions of area issues

1) managing underwriting 2) member firms NOT selling group

prohibiting trading practices (7 types)

1) market rumors 2) front running 3) marking the close/open 4) churning 5) interpositioning 6) trading ahead of customer order 7) quoting a security in multiple mediums

t/f ex markup, etc/ 5% rule

1) markup is applied to ask price when market maker sells to customer (T) 2) total price paid by customers is the ask price (F) 3) FINRA 5% policy allows a broker dealer to charge enough to make a profit (F) FINRA is all about fair and equitable trading, do not care about B/D profits 4) 5% policy applies when a customer sells a security and uses proceeds to purchase another security (T) (this is for the proceeds transaction)

types of bond yields (3)

1) nominal yield:coupon rate, fixed, does not change. 7% coupon = $70 per year (.07*1000) or 35$ semi annually 2) current yield: relates annual interest to price of bond.... = annual interest/current market price of bond 3) yield to maturity: overall rate of return if held to maturity. assumes 1) reinvestment of coupon annually and 2) takes into consideration loss/gain @ maturity depending on if you paid discount or premium for bond if you paid $900 you will make $100. YTM=overall rate of return=Basis=most IMPORTANT of all yields -if bond is trading at par, ALL THREE WILL BE EQUAL -if trading above par meaning i-rates went down, NY doesn't change, CY is smaller since you are dividing by a larger denominator, and YTM is even smaller since it takes into consideration losses at maturity for paying premium -if trading below par=meaning i-rates went up. NY does not change, CY will be higher since denominator is smaller, and YTM is even higher since takes into account gains at maturity nominal and current do not give you overall return on investment, only YTM does

types of preferred stock (5)

1) non cumulative=no payment of back up dividends=no entitle to unpaid dividends 2) cumulative=investor is entitled to unpaid div. they must be paid to pref. before common can be paid at all, unless all are paid to pref then none go to common). IF NO divident pair to pref. holders OR only some was paid then zero will go to common holders unless full payout went to pref. first. 3) callable=company can buy back shares or stock, typically over par value ($100), since some pref. stock doesn't have a maturity if a company raised the money they needed then can minimize outstanding shares) 4) participating= can receive extra dividends if co. did well that year 5) convertible= can convert to common stock

muni docs (4)/info

1) official statement 2) legal opinion 3) new issue confirmation 4) committee on uniform securities identification procedure 1) the disclosure doc for muni deals --> technically is not required but can be hard to sell without it , hard to market to investors if they don;t have these details. the broker dealer distributes (mandatory for them to distribute it IF one was prepared) 2) prepared by bond council attorney hired by muni who give opinion on - whether issue is legal, valid, enforceable obligation - tax exempt status of the issue=interest received is exempt from fed taxes and sometimes state taxes ***does not give opinion about creditworthiness of bond, that is for credit rating agencies*** 3) provided to purchasers along with copy of official statement by no later than settlement date (there is also a prelim official statement) 4) CUSIP # = universal ID# they assign to uniquely idenetify each security (underwriters apply for one)

the trading process (5 steps)

1) order entry=ticket details show how trade should be executed 2)execution=occurence of a trade in a market center (some venue) 3) clearing=executing firms agree on trade details, anything not recognized results in DK or don't know which is sent from on B/D to another if details don't match up exactly 4) settlement: when customers name is placed or taken off issuers books (can be t+1, t+2, etc) 5) custody=safeguarding of client/firm assets once they are held in street name

registration process under securities act of 1933 (3 dif time periods)

1) pre registration 2) cooling off 3) post registration 1) prior to actual filing with SEC, this is when talking with bankers, repping documents, completing registration statement, broker dealer/RR DONT talk to the public (CANNOT reach out to get idea of investor interest), underwriter does due diligence 2) file with SEC, issuer distributes preliminary prospectus = red herring (bc has red writing saying preliminary)= doesn't have final offering price or effective date yet (2 missing pieces) -RR/Broker dealers can reach out to the public to get an idea of potential investor interest BUT no money can be accepted/no firm orders placed -Blue sky the issue=refer to state securities registration/laws, may need to register with each state in which we plan to sell -hold final due diligence meeting, all parties meet and make sure everyone performed their due diligence and make sure all info is current/no need to change anything 3) get effective date from SEC=can legally sell -can confirm orders with those who are interested=give out final copy of prospectus to them with final pricing -can accept money -must contain SEC no approval clause

other corp actions (4, preemptive rights, m&a, spinoff, exchange offering)

1) preemptive rights: provide existing shareholders with opportunity to purchase additional shares directly from co usually pay discount (to maintain existing ownership %) 2) mergers/acquisitions: merger=combo of 2 companies. acquisition=one co purchasing/assuming control of another 3) spinoff: co may choose to spinoff a specific business to existing shareholders--> shareholders receive new shares of original co + new co. that you owned as part of a larger co. 4) exchange offering=you owned one security and co. says we will offer you cash/new security if you turn in those other securities you own

measuring i-rates (prime rate, discount rate, fed funds rates, call money)

1) prime rate: base rate, so many mortgage rates may be prime +/- some value. it is the rate charged by commercial banks to their best corporate clients so riskier clients will have higher i-rate 2) discount rate: =direct borrowing from parent= rate charged by federal reserve(central bank) when a member bank borrows directly from it. it they want to slow economy, they will increase the discount rate--> discourage borrowing/lending/econ activity 3) fed funds rate=member bank lends directly to other member bank=changed on an overnight basis=bank with leftover reserves lend this out (this rate is NOT set by the feds..instead by supply and demand) -fed funds/discount rate usually track each other 4) call money: wholesale $ lent to b/d who relends to margin customer to earn a spread=financial margin activity=rate commercial banks charge b/d

t/f re compensation

1) prior written notice must be provided if an RR is being compensation for part time job (T) 2) firms are not required to maintain records of comp that RRs receive for transactions executed outside firm (F) this is private securities transactions which the RR must receive firm approval and firm must record 3) gift valued @ 175 and given to 2 RRs is acceptible (T) 4) trip to luxury resort awarded to RR who sells most share of firms MF is acceptive (F)... specific product is not allowed

types of financial transactions (2 types - public offering and private/reg D) and positive and negatives of each, also PIPE)

1) public offering 2) private/reg D 1) as regulated in the 1933 act, can be initial public offering or just subsequent offering (AKA follow-on offering). The benefits to this is that you can offering to the public=wide aware of investors. the negatives is that it is more time consuming and more expense overall. the SEC disclosures/registration/process/filing fees/attorney/accounting fees can add up -proceeds can be primary, secondary, or a combo of both -for primary, the company is selling securities and proceeds to go the company -secondary means that securities are being sold by shareholders and therefore the proceeds go to those shareholders (usually are founders, directors, venture capitalist firms) -some can be a combo of both 2) exempt offering with no public distribution. the benefit is that this is much quicker and less expensive to raise money. the negative is that the securities are privately placed to sophisticated investors only (small investor base) PIPE offering=private investment in public equity=when already public company conducts a private placement

Limited partnership offering practices (2)

1) public offering: offered under act of 1933, registration required under act of 1933 underwriter is used to facilitate, prospectus is used 2) private placement: offered through reg d=private placement=opened to accredited investors=exemption from registration through reg d

underwriting t/f

1) public offerings are only used for primary offerings (F... can be secondary or a combo) 2) underwriter in a firm commitment is acting as a principal (T) 3) underwriter in a best efforts underwriting is acting as an agent (T) 4) shelf registration allows underwriter the ability to offer securities once within a 3 year period (F)

types of trading transactions (3)

1) purchase 2) long sale 3) short sale 1) can pay in full or on margin or reg T, must deposit 50% 2) sale of securities owned by the customer 3) customer borrows from the firm to sell since they are selling securities they do not own. must deposit X amount, almost like a down payment (appropriate amount of margin) risk is on the upside and is unlimited -but you have to replace what you borrow so you will have to buy the position (you sell first though and hope the price goes down so when you go to buy it, it is at a lower cost so you can profit) usually you buy low and sell high but this is the reverse since you are selling first and hope it goes down **risk is unlimited since no limit to how high stock could rise

what are they investing in.... types of LP (real estate programs, 4 total)

1) raw land deal=speculation on land appreciation=most aggressive. you buy land and pray bigger business will eventually want to buy it. the property doesn't make any money, few tax benefits. can go on for decades 2) new construction: buy property, put up housing, etc. then sell it. shorter time horizon but risk of overbuilding, cost overruns, etc. 3) existing construction: safter=buy existing property, will have operational history so you know approx costs of upkeeping, details, problems, etc. 4) low income/government assisted: safest investment bc government backs them, tax benefits/credits but high maintenance costs

measuring investment return (3 ways)

1) real rate/inflation adjusted= rate of return minus inflation rate 2) risk adjusted return: rate of return minus risk free return 3) risk free return: rate of return found on a U.S. treasury bill since risk is considered to be very very low ex. 6% rate of return while inflation is 1.5% and t bills are yielding at 2% real return=6-1.5=4.5 risk adjusted=6-2=4

MF t/f check in

1) redemption fee is assessed on ALL sales of MF, F (only some depending on holding period) 2) client should not be engaged in withdrawal plan while also purchasing shares, T 3) class B shares shouldn't be recommended to investor who is considering buying a lot of shares, T 4) switching form one fund to another within the same fund family is a tax-free exchange, F

continuing ed (2 kinds) (what happen if you're in the military?)

1) regulatory element and 2) firm element 1) applies to all registered persons, no grandfathering, due on 2nd anniversary of initial registration then every 3 years after that (no need to retake test, just modules). must be completed within 120 days of notice from FINRA, if not completed, registration becomes inactive and if registration is inactive for more than 2 years you lose registration -SIE is good for 4 years and series 7 or other registration is only good for 2. 2) ongoing training as directed by your firm no set rule by FINRA for this... must do "needs assessment" by looking at what continuing ed their employees need and coming up with training plan which must be reevaluated annually -CE may be different depending on what area of the firm you work in if in military.. everything is on hold while serving.... RR serving in military are exempt from 2 year inactive status that normally applies and both elements of continuing ed are put on hold *time doesn't tick for those when in military*

municipal bond underwriting (4 parts, 1 role of underwriter and underwriting process/how underwriter is selcted, 2 types and 4) syndicate offering)

1) role of underwriter: municipalities use competitive/negotiated process and can select investment bankers to help. Basically an underwritier acts as a link between the issuer and investor. they assist the issuer in pricing/structure of inancing/ and preparing the disclosure or official statement (though not legally required for munis since they are exempt from securities 1933 act) but many issue these to help market to customers NOT THE SAME as a prospectus 2/3) underwriting process/how underwriter is selected: - negotiated method: state/city selects investment bankers to work with and together negotiate details and guidelines between both parties - competitive methods: issuer has underwriters submit sealed bids and best bid = lowest cost over life of the bond, wins. basically each underwriters submits a bit that states we will pay you X$ for bonds if you issue at ___ rate. to begin this process, the issuer will publish a notice of sale. 4) forming syndicate: a syndicate is a group of brokers dealers that get together to underwrite an issue. why do they do this? 1) share in liability=spread out risk 2) a lot of firms try to sell the deal=more firms are able to sell the bonds syndicate agreement/letter: agreement between broker dealers re the size, type of offering, split of unsold bonds, and % required for each particpant before entering into one of these syndicate offerings

additional underwriting terms (shelf registration and market-out clause)

1) shelf registration= when issuer files registration statement with the SEC but can issue off that statement for up to 3 years, since all major details are disclosed up front... we can come to the market very quickly bc the leg work is already done=allows for flexibility in coming to the market...we disclosure type of securities/up to x amount... we don't want to raise all $ now, we can have this flexibility in coming to the market. we can come to the market many different times, each time however we do need to have prospectus supplement=disclosure for securities sold at that one time. issuer/underwriter can adjust details of the offering to reflect the market conditions at each different time they go to the market. 2) market out clause: provides underwriter with ability to get our of firm commitment underwriting if events that making selling the issue very difficult occur. reasons are limited and disclosed in the clause

main uses for options (2) (speculation and hedging)

1) speculation: use options in attempt to make money, has no existing position in the underlying security, long calls/short puts are bullish (want market to go up), long puts/short calls are bearish (decrease market) 2) hedging: can also be used to reduce your risk, purchase options to protect udnerlying security from adverse market move, if you long stock, you can buy a put to protect what you have. for ex if you buy 1 stock at 50, then buy 1 50 put with 3 point premium... if stock goes up then you would let the put expire / you only lose the premium (YOUR INSURANCE, you hope you don't have to use it but you may) but you benefit from the stock you own increasing. BUT if the stock falls to zero.... then you exercise the put and make someone pay you that price so you basically lock in the selling price -you pay a premium to ensure/protect the position and worst case you lose the premium by letting it expire but protect yourself from losing all you paid for if stock was to fall to zero bc it would be worthless at that point

U.S Treasuries types quick comparison

1) t bill: up to 1 year maturity, book entry, $100 or multiples of, weekly auction, pays discount and thus similar to zero coupon bond 2) t notes = 2-10 year maturity, book entry, 100$ of multiples of, periodic auction, pays interest semi annually, quote at % of par value in points and in 1/32 of a point 3) t bonds: 10+ maturity, $100 or multiples of, book entry, semi annual, periodic auctions, quotes at % of par in points and 1/32 of a points

methods of offering REIT (3)

1) tier 1: (transparent, liquid) traditional way=registered, follow securities act of 1933, send out prospectus, list on exchange, trades throughout day, highly liquid 2) tier 2= mostly transparent=registered but not exchange listed meaning this product lacks liquidity 3) tier 3: less transparency, illiquid: =unregistered and illiquid. may only be accredited investors through reg d offering (meaning through private placement).

t/f ex for muni docs

1) when an official statement is prepared by issuer, it must be provided to any purchaser of new issue (T) 2) legal opinion guarantees the payment of principal/interest in a muni bond (F) (all they say is that it is tax exempt and it is a legal obligation to pay) 3) bond counsel for issuer prepares legal opinion (T) 4) MSRB (don't haveauthority over issuer, they have power over banks, B/D,, etc) requires preparation of an official statement (F)

ex edu account types (2)

1) which type of investor is a fee based account unsuitable (buy and hold/inactive trader) 2) how much/how long can contributions to CESAs (2k per year up to child's 18th birthday) 3) which edu account is designed for higher ed --> 529

bidding at U.S treasury auction(2 types)

1)competitive bids: placed by large financial inst. who state the PRICE and Q they are willing to pay for it, most broker dealers HAVE to bid this way 2) non competitive: placed by public and some broker dealers, only indicate Q they want to buy, these bids are filled 1st, bidder pays lowest price of highest yield of accepted competitive bids ex. 100,000,000 bonds offered at 4.5% coupon 1) 20 mil non comp bid (set aside, filled first, just not sure what price) 2) 40 mil @ 4.9% 3) 40 mil at 5% 4) 30 mil @5.1% so what happens: non comp is filled first, so left with 80 mil. then 40 mil at 4.9% (lower yield=highest price) and then 4 mil at 5% and 30 mil is not filled. *** everyone pays the same yield and that is the highest bidded yield or lowest price that completes the auction of those bids that won, so all pay in this case the 5%)

government security pricing (treasury market) trades at. ___ fraction of a point

1/32, bc this allows for smaller price movements, since this is a very liquid market quote: 87.24, fract = 87 24/32, dec=87.75 (24/32=.75), dollar= 877.5

Rule 147 and 147A

147A is one and the same, though considered a more recent update -instrastate offering, 100% of investors must be residents (provides an exemption for sales of securities to residents of one state) -the corporation has its principal place of business in the state and meets 1 of 4 requirements 1) 80% of assets are in that state 2) 80% of revenue is generated in that state 3) 80% of proceeds used are based in the state 4) a majority of issuers employees are based in the state -resales to non residents are prohibited to 6 months from end of distribution *may need to register in the state even though exempt from securites registration

what are the FinCENs two main reports? (bank secrecy act transaction report and SARS) what the the firm penalties if violation???

2 main reports: 1) bank secrecy act transaction report (BCTR): filed for all cash transactions executed by a single customer during one business day that exceed $10K (also filed for structured transactions=when $8K in deposits in the morning for ex and then $4K later) **filed by financial inst within 15 days, could be nothing wrong but report is STILL filed.. just means dep/withdrawal of 10K by one person in 1 day** 2) SARS report = suspicious activity report: filed when transaction or group of transactions equals 5K or more AND the firm is suspicious -filed within 30 business days - suspicious activity should be reported to supervisor/principals in firm -further action to be taken * violation can result in 20 year prison term or the greater of $500k fine per transaction or twice the amount of funds involved for the firm so they want proper AML procedures in place/detection/must file proper reports to avoid this

calculating current yield for EQUITIES=dividend yield

=annual income (as a dollar value)/current market price = annual income from dividends compared to stocks current market price NOT original market price, this is presented as a % ex. stocks trading at $40 per share has paid quarterly divident of $.30, the current yield is... (.3*4)/40= 1.2/40=3.00%

business cylce

=natural rhythm of economy, fed/govt try to smooth this out -there is an expansion period, (inflation may begin, then a peak, then deflation may occur during contraction/recession period, then we see a trough -when inflation begins, fed board responds with right money policy=do things to increase interest rates==> decrease consumption=tap the breaks and reverse when deflation is occuring they do easy money policy==> decrease irates==> spur increased consumption

no load funds

=no sales charge, restricted 12b-1 fee=no more than .25% of funds average net assets - since no sales charge=NAV and POP are the same -could have other fees such as redemption fee to prevent investors from jumping in and out of funds

proceeds transaction (5% rule applies)

=on the same day you sell securities, you use proceeds to buy securities ex. you sold 10K of securites and bought 10k worth and charge $300 markup on each trade so there was a total of $600 markup....you take the dollar value of sale, and view it as one trade so it is viewed that you charged $600 on ONE trade of 10k --> 6% mark up/down

accumulation phase (annuity)

=savings phase=pay in period=deposit phase -you purchase accumulation units -non qualified contract=not given to you through your employer but form broker dealer or insurance co directly -we buy into annuity contracts with after tax dollars so no immediate tax deduction benefits but ALSO no limitation as to how much $ we can contribute=very dif compared to IRA/401Ks -investment income is tax deferred until withdrawn (grows tax free) but when pulled out it is taxed as regular income -similar to MF, pricing is at the end of the day= AUV=accumulation unit value so if you periodically fund the annuity you pay different pricing each time -like MF, for sub accounts it is like a menu and as we change age/go through dif life changes these will change

premtive rights (rights offering) 2 different types

=type of derivative since value is derived from common stock value shareholders right to maintain % ownership in the company, no dilution... this is distributed through a rights offering -rights offering=issue more shares at discounted (shareholders exercise right at price below market value) rate to EXISTING shareholders, usually one right per share owned. ONLY if you have common stock shares do you receive any rights. this discounted price is am immediate value to shareholders since -often will take x amount of rights to be able to utilize them (think of this as an expiring coupon) - if you use rights your ownership % stas the same 1) short term=must be exercise within 4-6 weeks 2) tradeable=trade on same exchange, you can take part in the rights offering or trade your rights on the market

stripped securities (3)

=when security is stripped of interest payments and final principal payments and then repackaging and selling as zero coupon bonds. ... though these repackaged securities were not issued by the treasury, their cash flowers were secure since they were a direct obligation of the U.S. govt----> led to issuance of 1) TR (treasury receipts) which are backed by treasury securities that are owned by the issuing broker dealer NOT directly backed by u.s treasury 2) T-STRIPS=sep trading of registered int. and principal securities program= dealers can buy t-bonds, t notes and separately sell coupon adn principal payments as zero coupon (interest=dif between purchase price and face value paid at maturity) after requesting this through fed reserve bank. backed by us treasury quoted on yield basis 3) CMBs=cash management bills=issued at discount but mature at face value, very short (1 day sometimes) used to smooth out cash flow of treasury

trading rules - best execution

FINRA and MSRB require member firms to use reasonable effort to obtain best execution price for their customers, the factors include 1) character of market for the security (highest bid, lowest offer) 2) size/type of transaction and # of markets checked (check with many other broker dealers to check on prices) As the circumstances of each order and trading environment vary, so does the determination of what is best execution. Broker-dealers must be cognizant of the duty of best execution they owe customers when they receive, handle, route or execute customer orders in equities, options and debt securities. If a broker-dealer receives an order-routing inducement, such as payment for order flow, or trades as principal with customer orders, it must not let those factors interfere with its duty of best execution nor take them into account in analyzing market quality.

POP (also what is SEC max), POP equation

public offering price=NAV plus any applicable sale charge -set by the fund NOT broker dealer so POP =price you pay to acquire fund, and NAV is price to liquidate/sell fund SEC says POP can max out at 8.5% POP=NAV/100-sales charge %)

stock dividends (impact and tax abilities)

NOT cash dividends, this is when you receive extra shares of stock not cash. what is the impact: no gain/loss, no change in equity, same % ownership as before since you receive more shares, the price is adjusted accordingly so the overall real value is the same as before. -no tax ability for this since cost basis is adjusted and therefore there is no additional compensation that occurs such as income/capital gains. simply number of shares increase ex: investor owns 100 shares of co. at $60 per share. the copany declares 10% stock dividend thus... increase in 10 shares so before the dividend you had 100* 60 = 6000$ market value and after the dividend you had 110 shares but the price per share was 54.54 so --> $6000. what you can do is just divide the b4 value by the number of shares after the stock dividend to find the price. **no change in value owned unless the price then goes back up to $60**

recordkeeping requirements (SEC rules 179-3)... if you have the info you have to keep it on file...

SEC rule 179-3 (assumes you will buy/sell a variety of securities) requires info to be kept on file if they have it such as 1) name/tax ID # 2) address, phone #, DOB 3) employment status/association with other b/d 4) info to assist in determine suitability (income, net worth, risk tolerance, objectives)

bond credit risk - how to measure

U.S. gov have lowest credit risk since risk of gov defaulting is zero since they are backed by full faith/credit and taxing abilities -harder to judge this for co/municipalities so customers rely on credit risk analyzers such as Moody's/standar and Poor (S&P) they evaluate likelihood a co. will default and assigns a credit rating, this CAN be adjusted from time to time changing value of bond -best quality = AAA then AA, then A, then BAA/BBB, anything else is speculative grade. Moody's also subdivides each section into 1,2,3 so AAA1 is highest followed by AAA2, etc. S&P use + and - such as A+ is better than A- ****keep in mind that it is large issuers that are rated, just bc a co. doesn't have a rank does not mean it is bad, just may mean it is too small to apply a rating to****

3/7 prohibiting trading practices - marketing the open/close

affecting trades near opening/close of trading in attempt to influence closing price upward or downward ex) tempting for positions that trade at close.... would be doing a lot of orders right before market close or using this to prevent a margin call = try to run up closing price of stock

broker dealer - research

analysts!! study market and issuers to make reccomendations (buy, sell, hold)

12b-1 fee (and trailing commisions)

annual fee levied against the funds assets -covers marketing charges of underwriter and sometimes they will share this with broker dealer and can including trailing commissions = since only received once per year, they can be a check from prior sales. This relationship can last into retirment for some RR, so long as it is okay with employer contract, can still collect some of this fee, can only collect commissions on existing assets of existing clients= only can collect on existing clients assets at time of retirment

leverage financing

another term for bond/debt financing: since the issuer is borrowing against it's net worth -when a corp has more debt than equity outstanding it is considered a leveraged issuer

types of revenue bonds (rev bonds=type of muni bond) (12)

anything not backed by full faith/credit faith of the municipality 1) transportation revenue: used of toll/user fees 2) special tax: backed by one specific tax, ex=gas or tobacco or excise tax on alcohol 3) special assessment: backed by one time fee charged to people who benefit from a project (side walk or sewer system) they can charge assessment fee on benefiting properties 4) double barreled: backed by 2 sources of revenue provided by the facility. if revenue isn't sufficient, it is also general obligation of the municpality's full faith in tax/credit 5) moral obligation: if project revenue is insufficient, the state legislature is morally, NOT legally obligated to cover short fall (not double barrelled, but will vote to disburse funds if needed 6) private activity: bond where 10 or more % of proceeds will benefit a private entity (ex. sports team) ex) = industrial development bond: issued by municipality to build facility for corporation to use it, the muni will lease the facility to the corporation and it is the lease payments that pledge to back the bonds 7) house revenue bonds: bonds issued by state/local housing finance agencies in an effort to help fund single family or multi family housing for normal to low income families 8) dormitory bonds: issued to build housing for students at public universities, repaid by tuition 9) health care revenue bonds: used to construct non profit hospitals and health care facilities 10) utility revenue bonds: to finance gas, water, sewer, and electric power systemed onwed by government unit (backed by issuer fees charged to customers) 11) lease rental bonds: one muni leasing a facility to another (state building authority may issue bond to build dorm and then the authority will lease the dorm to the college ) 12) taxable muni bonds: may not always be able to issue tax free bonds.. this may be the case for projects that don't offer enough benefit for the general public (sports facility)

total return (equation)

applies to stock AND bond investments -all cash flows (cash dividends, interest, etc) PLUS any appreciation or MINUS any depreciation in value - this doesnt reference a time period, it equals = (end value-beginning value) + investment income (TOTAL PAID OVER TIME NOT per yr/beginning value) - ex: investor bought stock for $25/share and received $5 in income since the start. stock is now trading at 30. total return(expressed in %)=(30-25)+5/25= 10/25=40% you don't have the actual total return on an asset until you sell it but you can calculate it theoretically

stock classification: income stocks

associated with companies that pay higher than average dividends in relation to their market price -attractive to older/retired investors who are interested in current income and not capital appreciation -ex = utility stocks

info barriers

barrier where info shouldn't be shared with other side/other departments (investment banking on one side and research, sales/private client, trading, ops on the other)

capital gains vs capital losses (short vs long term) and (realized vs unrealized gains)

based on trade date to trade date, it is the result of sale or redemption of an asset if the proceeds exceed the basis/what was paid. -if sell at higher price than what you bought at = capital gains - short term/long term are defined by the IRS a) long term = you held the position for more than 1 year, taxed at a max of 20% b) short term=you held it for less than one year. taxed at ordinary rates usually you make money on longer term basis since taxes are lower especially if you are in one of the top tax brackets. capital losses: sell asset at lower price than what you bought it at, same LT and ST definitions as capital gains unrealized gains= appreciation=not taxed=you own the securities and it's now trading at a higher price than what you bought it at but you havent sold the security, once you do it becomes realized gains

measuring systematic risk (beta)

beta=measures volatility of stock (or other assets) relative to market in its entirety it is compared to beta of S & P 500 which is always 1 (normal/avg/standard volatility) -high beta stock=more volatile -volatility can be good or bad.... if beta is less than 1, it's expected to underperform when market is up and outperform when market is down and vice versa -if you have Beta of 1.5... you can assume stock will go up 1.5X times the market -if you hvae beta .5 --> stock B may only up half as much as the market **overvall, beta is a multiplier against what the stock market is doing on average. low beta=less volatile=more smooth

basic bond characteristics (6)

bond=contract between issuer and investor debt service = represents the total of all interest payments over the life of the bond & the final repayment of the principal value at maturity -par value -coupon rate -initial interest payment: -accrued interest: nterest -zero-coupon bonds: -maturity date: bond

Corporate bonds (+/- for investors and corps)

bonds issued by corporations. + for corp= corp doesn't give up any ownership by issuing bonds - for corp: corp has to pay interest and principal + for investor: less risk than buying company stock, since you are the 1st one paid - for investor: doesn't offer same potential for capital appreciation/no ownership/doesn't share in company growth potential through dividends

stop and stop limit order

both are triggered/activated when a trade occurs @ or through the stop price (a price set by the investor). but may not provide protection bc possible they won't execute -sell stop orders will activate at stop price or lower -buy stop orders will activate at stop price or higher -once stop order activated --> it becomes a market order and immediately is executed. the risk is you don't know the price -once stop limit order is activated (when you enter a stop and limit price... once stop is activated it becomes limit...) --> becomes a limit order=uncertain execution. risky bc it can be activated but never executed

treasury notes vs treasury bonds

both pay irates semi annually, both with min denominations of $100 but treasury notes typically have maturities of 2-10 years, while t bonds have maturity of more than 10 years. ** interest earned is taxed at fed level but not state and local - main reason to buy =safety

dow jones (3 dif averages, which is the most widely followed)

broken into 3 averages -broad sector not many stocks -smallest index -dow jones industrial average=30 stocks (most widely quoted of the three and it the most popular stocks, and is what people reference when asking how the market looks) -dow jones transportation= 20 stocks - dow jones utility= 15 stocks

FINRA rule 2262 - disclosure of control relationship with issuer (2 situations in which a control relationship exists)

brokerage firm that has a control relationship with an issuer must disclose that to a customer and must be presented before or at time of trade of that security 2 situations in which a control relationship exists: 1) member firm is a publically trade copmany 2) member firm is a subsidiary of a publically traded copmany

long call - breakeven ex

buy 1 XYZ feb 45 call @ 3 current mkt value = 47 breakeven=strike price + premium = 45+3=48 but why?? cash out: -you pay 3$/share for premium -you also pay 45$ per share if exercised -this totals 48$ spent in the process to establish this position so we need at least 48 to breakeven

individual options strategies for calls (rights, obligations, strategy, breakeven, max gain, max loss for Jul 50 cal @ 5 for reference)

buyer: right: buy at strike price obligations: none strategy: want market to go up (bullish) breakeven: strike price + premium max gain= unlimited (stock can keep increasing in price) max loss= premium (you let call expire) seller: right: none obligations: sell stock to buyer at strike price strategy: hope market goes down (no one will want to buy at strike price is it is cheaper elsewhere so buyer lets it expire and seller keeps premium) breakeven: strike price + premium (you start with the premium already so you can deal with it going up by strike price and still not have lost anything) max gain=premium if buyer lets it expire max loss=unlimited (stock can keep increasing in price)

option table general (call vs put and buyer and seller obligations) and what each party hopes for each contract

call option= 1) buyer has right to buy underlying stock. their hope is that the stock goes up in price... bc regardless of how high it goes you can acquire at the same price. it is nice to acquire something at this "deal" price... since it is worth a lot more 2) seller has obligation to sell stock if buyer chooses to call it away from seller. they hope that the market goes down... bc they don't actually own the position so they have to go buy it if the buyer exercises their right, they don't want to buy something at a higher price than they are able to sell it at. put option: 1) buyer has the right to sell stock at strike price (fixed price set in contract) until some exp. date (they PUT this stock on the other party). they hope that the stock price goes down, since they can redeem X$ per share meanwhile the stock is actually worth a lot less, they can buy it at a low price/for cheap and get a profit from selling at the higher price 2) seller has to buy from buyer if they exercise this right/put it on the buyer. they accept this obligation bc they get a premium for it

yield (bond caluculation)

can refer to return on an investment but in talking about debt instruments, the yield is the interest rate -calculating interest to be received annually --> take par value and multiple it by stated interest rate so 1000*.06 (or 6%) = $60 annually or 30$ bi annual since they are usually compounded twice per year -maturity date deteremines when the investor is paid interest since the one payment is ALWAYS the month and date of maturity while the other is 6 months from them (ex maturity June 2030 --> receives interest on june 1st and December 1st each year)

SEC Rule 10b-18 - purchase of certain equity securities by the issuer (2 reasons why this is appropriate and 4 things SEC assumes for this to be valid)

controls how an issuer or affiliates can purchase their own securities, since this can be done to increase the price of the security 2 reasons why it is appropriate to do so: 1) stock buyback plans 2) funding employee stock purchase plans -SEC assumes the buying of their own securities is valid if they do the following: 1) only one broker dealer is used to place bids/make purchases 2) purchases are not made during certain times in the day (can't be first part or last part) 3) the bid or purchase price is limited: the price can not be higher than the highest independent bid 4) the amount of stock purchased on a single day is limited, cannot exceed 25% of average trading volume for that security

securities investor protection act of 1970 (SIPA) - what is specific about a margin account in terms of determining value -what is not covered -what is the procedure

created the Securities Investor Protection Corporation (SIPC) (NOT A GOVT AGENCY) which is industry funded, non profit insurance entity (funds through assessments paid by broker dealers, you pay into SIPC) by providing insurance to customers of broker dealers if they go bankrupt but DOES NOT protect against marketed losses or employee misconduct, also protects certs. held in street name -any firm conducting interstate commerce must be members of SIPC -covers both institutions and individuals for up to 500K, but no more than 250K of which can be in cash (cash and margin accounts are combined, but IRA and joint for ex have separate coverage/is considered a separate customer) **** IN MARGIN ACCOUNT IT IS THE EQUITY BALANCE NOT THE MARKET VALUE THAT DETERMINES COVERAGE*** - each separate customer is covered=separate coverage for accounts: ex=joint, brokerage, ira = 3 separate coverages, roth and trad = 2 separate customers, 2 of same brokerage acct at same firm=1 customer, separate coverage for accounts at dif brokerage firms -what is not covered: securities not held in street name (thus held in clients name), commodity accounts, fixed annuities, futures broker dealers that have securities in the possession of a failed broker dealer, personal accounts of senior officers, if in customers name they are given back to customer without limit -IF someone borrowed money to buy some of the holdings, they are covered for the equity value so the dif between the total value and what they borrowed, they liquidify the loan portion and use that to pay it back -procedures: bankruptcy occurs, trustee is appointed by federal court, securities are based on market value the day trustee was appointed, customers with assets over the limits will received the full coverage and are treated as general creditors for the remaining -SIPC must be provided to new customers and on a yearly basis with existing customers

CIP (4 parts, 1 is OFAC)

customer identification procedures, A Customer Identification Program (CIP) is a United States requirement, where financial institutions need to verify the identity of individuals wishing to conduct financial transactions with them and is a provision of the USA Patriot Act. 1) required identifying info: name, legal address, DOB, ID # (may be dif between us/non us persons) 2) identification # of U.S persons: tax ID or SSN 3) identification # for non US persons: one or more of the following: tax ID, passport #, alien ID card (green card), other government issued docs (license, etc) 4) OFAC: office of foreign assets control -OFAC list is maintained to identify names of terrorists/criminals -if clients name is on list, transactions are blocked/law enforcement is notified - identifies countries we can't do business with

1/3 - market order

customer is ready and wants to buy/sell, customer specifies security and size of order only, order is executed immediately -fill=guarantee execution -order executed immediately **time/price is not guaranteed

securities act of 1933 (4 main parts)

first legislation to cover securities industry, focus on the primary market 1) prospectus= required that investors be given full and fair information to be provided with full and fair disclosure to be able to make informed investment decisions=disclosure doc with all relevant info. the SEC doesn't approve this, just need to see info has been filed 2) outlines rules of conduct for both issuers and investment bankers (underwriting firms). underwriters must perform reasonable investigation/due diligence =liability 3)regulates raising of capital 4)requires SEC registration of new issues

impact of interest rate risk

how will change in general i-rate effect value of existing bonds? -as rates go up/exceed coupon, the value of the bond will fall, and when rates fall below coupon --> bond likely trading at premium -if bond has coupon below today's rate-trading at discount and vice versa. -rates change a lot --> bond value changes all the time as people compare that coupon to new bond coupon -a very short bond, 1 year, (tend to have less duration/sensitivity to i-rate swings) and thus are more price stable bc not much change can happen in a year -long term securities fluctuate a lot more in value. if bought at 5 now trading at 7.... you have a 2% deficit for the long duration of the bond -long term bonds are more price volatile and move more=if rates go up they move down more than short term instruments -stocks are bought for yield as well=like bonds are interest rate sensitive as dividends can be effected (though usually a bond discussion) **risks cannot be avoided by diversifying**

Mutual Fund complex

idea to to collect as much money as possible and have as many fund options available as possible so as to cater to variety of investors -so one fund complex can include international fund, global fund, growth fund, target date fund, money market, etc. -usually can transfer one from fund to another within the same family without paying an additional sales charge BUT this is a taxable event. if you go from fund family to fund family this is taxable AND you will pay additional sales charge

529 able plan= acheiving a better life experience

if you are disabled and receving social security disability, medicaid, or private insurance payouts, this allows you to continue receiving medicare payments -max contribution is 15K per year NO front loading -disability payments continue so long as account value doesn't exceed 100K -distribution are tax free if used to pay qualifying expenses and grows tax deferred

after market prospectus requirements (depends on 2 factors and then lists 4 options with time period)

if you reach out to broker dealer in syndicate wanting to buy shares in secondary market OR any participants selling in secondary market must also... you do need to provide prospectus for CERTAIN period of time most effective date -most of the time delivered electronically, SEC determines access as delivery. so for how longer after effective date do you need to? -depends on 1) type of offering and 2)whether it was listed or unlisted (on an exchange) 1) non listed IPO=90 days 2) non listed follow on =40 days 3) IPO to be exchange listed=25 days 4) exchange listed follow on = no requirement for after market prospectus delivery ** more public info available=less time needed**

529 plans (muni fund secruities)

investor set aside $ and select between different mutual funds, grow tax deferred and any earnings grow tax deferred AND can be taken out tax free if the money is used for the right purposes, doesn't limit schools you can go to like the state tuition plan. -funded with after tax dollars -most investors choose to fund one from own state.... if you purchase plan in the state in which you don't live, you may be subject to state tax, if you bought in your own state you are exempt at state and fed level... - money used in one state plan can be used in another state -max contribution=15K per year to avoid gift tax (this is doubled for married couples), OR you can front load five years of contributions so 75K up front or 150K per married couple (for people who haen't contributed enough yet or are just opening account adn kid is of age) -withdrawals that are qualified (tuition, books, room/board) can come out tax free. for grades k-12 there is a max withdrawal of 10K **** 529 plans remain property of donor not like an UGMA or UMA which become property of child when they are of age... so with this plan you can use one kids plan on another kid if one got full scholarship, etc....

how does the syndicate make $ (underwriter spread, splits in 3)

investors invest $, the majority goes to the issuer/whoever is selling them to be invested but there is what is called the -underwriting spread which is the difference between public offering price (what investors pay) and what $ goes to the issuer=what the syndicate earns for selling securities. easy to think of it as issuers get a discount and sell it to public at a higher price, the dif=what they take away how is the spread split (3) *** lead manager is only party that can get all 3*** 1) manager fee (they run syndicate) 2) member/underwriting fee (for risk broker dealers take on) lead manager is also a member 3)concession (selling concession bc it goes to any member who sells, can be manager, external B/D in selling group)

insider trading (tippers/tipees, procedures (restricted vs watch list), penalties (civil and criminal), bounties)

involves buying/selling of securities using material info (that could move price of security) that is non public info about issuer to make profit or avoid loss -tippers/tippees: BOTH are in violation, inside info passed from tipper to tipee who then trades on that info - procedures: b/d must have written procedures designed to prevent insider trading including: system to monitor employees personal trading, establish info barrier to prevent access to confidential info, trading restrictions in place/monitoring of certain securities in which the firm has access to insider info - restricted list = dist. to employees and cannot be trade - watch list (AKA gray list) = only available to legal/compliance who watch closely insider trading penalties: civil and criminal penalties exist 1) civil= like a lawsuit, SEC goes after you, may demand disgorgement of profits (they take it back) AND the payment of 3x of the damage (whether profit or loss) 2) criminal= by justice department, must be proved beyond reasonable doubt=higher standard to prove here. may be subject to a max of $5 mil fine and/or up to 20 years in prison per violation bounties: SEC can award bounties up to 10% of penalty for info leading to those responsible for violation=incentivize

issuer

legal entity that sells securities in order to finance its operations (business, governments) ie. us treasury, us gov agencies, foreign governments, state and local governments, corps, banks

VRDO - variable rate demand obligations

long term, marketed as short term investment -interest rate is adjusted at specified intervals (daily, weekly, monthly) and in many cases there is a put option (to give back to issuer) on the date that a new rate is established

how you close out/liquidate options

long/buyer = need to sell it short/seller=need to buy it so in the end you are left with no position = closing the purchase g/l is determined by the difference between the price paid the price received for an option (compare premiums)

ERISA

major federal law=employees retirement income security act of 1974 -created to prevent misused and mismanagement of private pension plan funds (corp or individual) -rules apply to private sector defined benefit/defined contribution plans (defined contribution=define amount you are putting in each year like 3% of income yearly, defined benefit=where person knows what they will receive) -it determines qualified status (employer/employee can contribute tax deductible) earnings are typically tax deferred (earnings grow tax deferred=you eventually pay taxes to pull it out) -plans can't be discriminatory and must be offered to all employees who are 21 plus and have @ least one year of full time service (1000 hours) -an approved vesting schedule: if employer contributes $, what % could go to employee if they leave =% of employer contributions to which employee is entitled when withdrawing from plan. employees are always 100% vested with their own contributions

SIE = securities industry essentials (who is eligible, how long is it valid, what do you do after you pass it)

makes sure all people in industry have broad understanding of industry, covers fundamental concepts -it is at the centerpiece of exam restructuring which aimed to reduce # exams and make SIE a prereq for all remanining qualification exams -who is eligible? anyone who is 18 years or older, open to the public so there is no need to be sponsored or associated with FINRA or b/d -how long is it valid? It is valid for four years, if don't pass other qualifying exam in four years you lose SIE -after you pass SIE, you have to pass specific exam related to registration category such as series 7 (general securities exam) = must take second exam to become fully registered principals

backing away

market makers quote -> b/d obligate to buy/sell @ stated offer up to size of it's quoting, bid=10 (must buy at 10, ask=10.05 = must sell at 10.05. the firms quote MUST be honored=stand ready to buy/sell at these prices up to X quantity (which is also attached to the quotes) SO the failure to honor a firm quote=backing away=a violation

bond quoted at 94.5... what is the price, bonds price is stated as % of par

means you are paying 945, since you take 94.5*10+945 (since it is measured against par which is 1000, you take 100*10=1000)

non cumulative preferred stock

missed dividend payments don't accumulate, only current year dividends need to be paid out before common stock owners (preference is only for the current year) -so if a company was not paying out full dividends bc the market was poor, the year in which they are able to pay out the dividends, they do not need to make back tracking (missing) payments and only current year preference applies

exercise vs close out option ex

mkt = 64 when bought 1 ABC may 65 call @ 3 later market increase to 72 and now premium for some option is much higher = 7 points of intrinsic value and lets assume 1 point of time value so premium is 8 now. scenario 1= exercise option/sell afterward cash out: 65 + 3 = 68$ per share or $6800 cash in: 7200 (what we can make if we turn around and sell it) so we make $400 scenario 2: close out cash out: $300 or $3 per share (we haven't exercise this yet so only have out of pocket paid for premium) cash in: sell it and sellers make premium so it is not selling at 8 premium so we make 800$ differenc ehere is 500$ so better in this case to close out also usually cheaper commission to sell out/liquidate than to exercise an option

monetary and fiscal policy

monetary=set by fed reserve board=control money supply fiscal policy=set by congress=taxing/spending Keynesian (government internvention): principally attempt to influence taxes and expenditures. type of policy=fiscal. responsible for implementation=president/congress monetarist=control $ supply--> control i-rates. principally attempt to influence $ supply, type of policy=monetary, responsible for implementation=federal reserve board

tactical (active) asset allocatoin

more cost, more taxable events with these -usually a short term trader -assumes markets are inefficient, involves altering the asset mix in anticipation of changing economic conditions/events. -raise cash levels when mkt is rich and vice versa when market is cheap = market timers 1) ex is sector rotation: money is moved from one industry or sector to another in an attempt to beat the market. portfolio managers trying to employ this will try to anticipate next turn in business cycle and shift assets into sectors that will benefit

federal regulation, regulators (5)

most regulation occurs at this level bc of laws passed by congress. these are enforced by the SEC. SEC - super regulator- securities exchange commission is a fed government agency to protect investors and maintain fair markets. they are meant to ensure congress's demands are met -SEC authority: (one party must be in the US) any securities transaction that is interstate, the division of enforcement prosecutes cases on their behalf, any criminal/civil action suits are taken over by the DOJ -Department of treasury: watch out for any illegal activity -IRS: watch out for any illegal activity but also provide guidance to investors related to tax implications of buying, selling, and holding certain securities -Federal Reserve Board (board of governors on the Fed reserve, they control the money supply) to maintain optimal employment and stable prices to change this... they change the discount rate, and reserve requirements, to do so they buy and sell securities -FDIC (federal deposit insurance corporation), banking regulator, maintain public confidence in the financial system, 250K deposits per person is protected, maintain stability and financial soundness/confidence

S&P 500 (what is composition)

most widely followed=most compared to this benchmark -400 industrial co -20 transportation -40 utility -40 financial

NAV and NAV per shares and liquidation value of your shares

net asset value=value of portfolio at the end of the day divided by the total number of shares =fundamental value per share (determined at close each day) -different each day -synomymous with bid price or redemption/liquidation price soooo liqudation value of your shares=# shares you own * NAV NAV per share=(total assets-total liabilities)/# shares outstanding

index options

options on an index=provide opportunity to speculate or hedge based o nmovement of the market/index -unlike equity options, (everything previously discussed), these options are cash settled -index=basket of stocks so instead we exercise for cash... seller pays buyer the in the money amount = dif between closing index value and strike price so instead of calling/puting stock the seller pays the buyer the different of these two values -the strategy is the same.. if the market is up you want to buy a call and ice versa

OBI

outside business activities an RR does such as serve on a board of directors, writing articles for financial publication, bartending, etc, etc. DOES NOT INCLUDE volunteer/charity work/hobbies only for paid positions and other things such as having a rental property **not securities related** requirements: 1) written notice: prior to employer to be involved in outside activity if being compensated or has reasonable expectation of compensation (doesn't have to be money) 2) update u4 form: although firm approval is NOT required (FINRA just requires that firms have policies/procedures on how to deal with this) to have OBI, you have to notifiy firm/update u4 form

why bond prices fluctuate from par (discount vs premium) (interest rate risk/credit risk)

par value differs from price investors pay to purchase the bond (market price) although most are sold at par value -if sold below par = discount -if sold above par = premium 2 reasons why these discounts or premiums exist 1) interest rate risk: this implies that as market prices increase, investors will not be interested in purchasing existing bonds at par since they're able to obtain higher yields by purchasing new bonds SO existing bonds will need to be offered at discount to attract buyers and conversely if I-rates fall, the bond will trade at a premium since they can't get higher yields elsewhere 2) credit risk: recognition that issuer may default and may not be able to meets obligations to pay interest and principal, those issuers that are a higher credit risk must pay higher interest to induce buyers (lower bond value if co. is risky)

types of prospectus (4)

prospectus=any communication that offers a security for sale 1) statutory pros= the official prospectus=has all required disclosures and info 2) preliminary prospectus (AKA red herring)=same as final statutory pros except was used prior to knowing effective date and final price/dealer discounts/proceeds to issuer, etc. used to get indication of interest and can have expected price range which can change depending on how much interest they find investors have 3) summary=generally for Mutual Funds=short for form for MF offerings. investor must be informed of statutory prospectus 4) free writing prospectus: any communicaiton that does not meet standards of statuatory prospectus. can be written or graphic, used to help sell the deal. includes legend that lets investors know they should read full prospectus. ex) term sheets (list of securities), and blast emails/other marketing material

dark pools

provides liquidity for large institutional investors or high-frequency traders -details are concealed from the public, (no dissemination of quotes) -anonymous -low transaction costs and little market impact

underwriting ex

public price =14 issuer price =13 1000 shares sold manager fee=.15 per share member fee= .25 per share concession = .6 per share if manager sells: -the customer pays 14*1000=14000 -the issuer receives 13*1000=13000 -manager gets... $1000 (takes in all 3 pieces) -member gets...0 -selling group gets...0 member sells: -customer pays 14*1000=14000 -issuer receives 13*1000=13000 -manager gets... .15*1000=150 -member gets... .85*1000=850 selling group get...0 selling groups sells: -customer pays 14*1000=14000 -issuer receives 13*1000=13000 -manager gets... .15*1000=150 -member gets... .25*1000=250 -selling group gets... .6*1000=600

gift limit (what about exception/business expenses)

purpose is to prevent RR from bribing people to give them business -limit is $100 per person per year (for gifts RR make to employees who can direct business of their employer back to RR -FINRA doesn't need to approve to give gift, it just limits the amount -FINRA considers $ value and # of intended receipients (ex if you give $250 to office with 3 receipients=permitted since under $100 per person -rules apply to gifts/gratuities from MF distributors or wholesalers to b/d salespersons ($100/person/year) **limits can be exceeded for events involving family relationships (weddings, etc), as well as meal ,sporting event, etc=seen as entertainment/business expense if attended by gift giver so higher limits (normal business expesnes don't violate the gift rule) (GIFTER must attend, cannot just give ticket) - gifts are valued based on greater of cost or market value

equity securities (common vs preferred)

raise capital by issuing stock (equity), this time when you buy this, you have ownership in the company and if the company is profitable then you may be entitled to a portion of the profits (this is received through dividend distribution). differs from bonds bc 1) typically no maturity date and 2) dividend payments are optional -only banks/corporations sell these and can do so publically or privately to specific group of investors preferred=paid a predetermined dividend (usually received first and higher than those of common holders, but don't get a vote in company matters) common=paid a dividend based on company fortunes

restricted stock (investment letter/lockup agreement)

received through private placement (whether gifted or bought) --> restrictions in place before they can be resold -lockup agreement basically means you are holding the security for a defined time period since you are not able to turn around and sell it right away (can drive price down if people can sell these with no rules)

broker dealer - Investment banking

referred to as underwriters of securities... they provide advise to issuers in who are looking to issue stocks, bonds, or a combo (structure/arrange security offerings) also can assist with M&A or restructuring for bankruptcy

balance sheet (what are assets and what are liabilities, and what is left? shareholder equity (3 components)

refers to assets and liabilities whereas income statement details if co is profitable assets (includes fixed assets and intangibles) current assets: cash, marketable securities, accounts receievable, inventory fixed assets: land, buildings, equipment (less easily converted to cash) intangibles: goodwill, patents, trademarks (intellectual property) liabilities (includes current liabilities, long term liability) current liabilities (owed within a year): accts payable, dividends payable, investor payable (for bonds) long term liabilities: notes, bonds (pay off principal etc, which is several years down the road) shareholder equity: if assets-liabilities is positive=shareholder equity=what is leftover assuming liabilities are all paid=true value of company. components of shareholder equity= 1) preferred/common stock 2) retained earnings 3) paid in capital/capital surplus

rule 144

used when trying to sell restricted or control securities -once filed with SEC you are letting them know that you are going to sell... they give you a 90 day period for which you can sell the greater of 1% of oustanding shares or the average weekly trading volume over the last 4 weeks. purpose=limit market impact by limiting Q that can be sold -NOT required for shares with value under $50K or under 5k shares

how to sell restricted securities (2 ways)

register them so them become freely tradeable or through rule 144 which permits sale of restircted and controlled stock restricted stock=usually received in private placement and didnt go through registration as a comp to senior officers etc control stock=registered stock that was acquired usually by directors/officers that owen 10% or more... is part of a public flat=purchased in open market insiders usually ahve both restricted and controlled if you're selling either restricted or control stock, you file 144 with SEC by time the order is placed **restricted stock has 6 months holding period **control stock doesn't have this

registrars and transfer agents (other important entities in the market)

registrars keep track of the owners of securities issued by the issuer transfer agent: issuance and cancellation of certs

securities exchange act of 1934 (rule 10b-5 of the act 3 major concerns, 10b-1, and 10b-3)

regulates secondary market, prohibits manupulation/deceptive practices rule 10b-5 of the act: -unlawful to employ any device/scheme to defraud -to make untrue statements of a material fact or to omit to state a material fact necessary in order to make statements not misleading -to engage in any acts/practice that would operate as fraud/deceit to another person 10b-1: states antifraud rules apply to exempt securites 10b-3 states b/d can't engage in fraudulent practices

rule 144 (3 main parts) -holding period -notice of sale -volume limitation (rules for restricted vs control securities) what is the exemption amount

regulates the sale of restricted (typically unregistered) and control/affiliate (owned by control person 10% or more and their family members) securities. 1) holding period: for restricted shares it is 6 months from when they were bought, no holding restrictions for control securities 2) notice of sale: someone selling either type of these securities most notify the SEC by filing form 144 at the time the sell is placed. the SEC responds by providing a 90 day window by which it can be sold, if they are not sold during this time, an amended notice must be filed. -EXEMPTION applies if it is under 5000 shares or total value of 50K or less 3) volume limitation: max amount of securities a control person can sell over 90 day period is the greater of either 1% of the total shares outstanding OR average weekly trading volume during the 4 preceding weeks

penny stock reform act of 1990 (what is a penny stock)

regulates the solicited sales of certain low priced stocks -penny stocks are non-exchange traded securities=unlisted (OTC, etc) that trade for less than $5 per share. since they are risky and highly volatile this requires firms receive disclosure from customer before buying and selling them

protecting client info (2 components of privacy... 1) regulation SP and 2) firms cannot disclosure client info unless...)

regulation SP=separate privacy law, FINRA says b/d must provide info to customers on b/d privacy policy privacy (2 parts) 1) regulation SP: - created rules for protecting client confidential information - clients provided with privacy notice @ opening and annually thereafter - required disclosure of info that's shared and whom it's shared with - required a reasonable "opt out" provision 2) firms can't disclosure client info unless: - ordered by court or govt entity - client provides written permission (person doesn't have right to know content of spouses account either

rights vs warrants

rights: issued to existing common stock holders, subscription price below current market value, maturity is short term (30-45 days) warrants: issued to purchasers of the issuers stocks or bonds, subscription price above the current market value, maturity is long term (years, not days)

rights vs warrants (stock)

rights=issued to sharedholder, short term, below market price, immediate discount/instrinsic value warrants= attached to new issue, Long term, initiial premium, above market value

unsystematic risk (4 main ones) and 7 additional risks

risks that are particular to a given security and can be managed through diversification 1) business risk: risk that a co. may perform poorly causing decrease in value of stock. competition may be better=fundamental model of business is on the decline for this company 2) regulatory risk that new regulations may have negative effect on investments value 3) political risk: risk that political events outside US could adversely affect domestic markets 4) liquidity risk: how easy it is to get $ back... so this stems from a lack of marketability, risk that investment cannot be bought or sold quickly enough to prevent or minimize a loss (hedge fund, etc) additional risks: 1) capital risk: risk of investors losing their investment capital ... this is where the bondholder is paid first then the preferred stock holder then common stock etc... 2) credit risk: risk that a bond may not repay its obligation (fed gov has zero risk, and state and local government are very minimal as well) we relly on moody's etc to rate these 3) currency risk: when US investors buys oversees investments and they risk loss when converting an investment that's made in foreign currency into US dollars (can work for or against you depending on if $ is high or low) 4) legislative risk: risk that new laws may have negative impact on an investments value (smoking laws or can be good thing... where all cars require back up cams for ex... this is good for manufacturers 5) opportunity risk= could have done better somewhere else=risk of passing an opportunity of making higher return 6) reinvestment risk: risk that interest rates will decline and coupons will be reinvested at lower rate (zero coupon bond has no reinvestment risk) 7) repayment risk: risk that mortgages will be paid off earlier due to lower current i-rates resulting in reinvestment in lower yielding investments=get $ back ahead of schedule=get chunks of $ when you don't want it. this accelerates when i-rates fall below mortgage coupon (choose to refinance, etc).

types of secure corp bonds (3 types)

rolling stock=backed by something of value 1) mortgage bonds: bondholders have lein on property as additional security 2) equipment trust certificate: secured by specific peice of equipment owned by the company, trustee has title to that equipment which can be sold or released (plane, train, trucks=collateral) 3) collateral trust bond=backed by securities of another company/entity (many times is the parent company) in this case the collateral is securities

securities exchange act of 1934 ( 4 major parts)

rules for activities in the secondary market (two highly recognized exchanges are the NYSE and Nasdaq) 1) created the SEC (regulatory authority in prim/sec markets) to help delegate to SROs 2)created margin requirements (Reg T) even though fed enforces this 2) regulatory oversight to the Fed Reserve board regarding the extension of credit (use of margin) for borrowing money or short selling (borrowing the shares that are sold with the assumption that the stock will decline in value allowing them to buy it borrowed stock at a lower price 4)creates registration requirements for broker dealers/RR and trading and insider regulation

FINRA - uniform practice code

rules govern trading and proper settlement of transaction goal=to standardized these rules ex=settlement and corporate actions -back office, create standards for trading, little customer interaction

borrowing/lending (what are exemptions without having to notify firm vs exemptions where you do need to notify firm)

rules prohibit RR from borrowing from and lending to client of b/d -exemptions include: - can borrow/lend without notification to firm if client is immediate family member or is a financial institution regularly engaged in the business of providing loans - can borrow/lend with notification to firm and approval is customer and RR are both registered with same firm, or a personal relationship exists, or business relationship exists outside of the brokerage firm

dollar cost averaging

same investment made re of share price over fixed period of time.... take the emotion out of investing. ex is 401K since you put money away re of how market is doing. when share prices are increasing, previously purchased shares are worth more and when share prices are down, investor will be able to purchase more shares at a lower price. -doesn't guarantee $ will be made -investors will pruchase more shares when price is lower and fewer shares when price is high so overall avg cost is lower than avg price

SEC (made up of...)

sec --> FINRA, MSRB, exchanges

U.s treasury auctions - primary market (competitive vs non competitive tenders)

securities firms compete by bidding on these auctions=competetive tenders since they specify price and yield firm is willing ti buy them at (similar to limit orders, may not be filled). -non competitive tenders: do not specify a price and are guaranteed to be ordered. these are filled first however bidder must accept yield and price determined by the auction -all winners pay lowest price of accepted competitive tenders=dutch auction

short call - breakeven ex

sell 1 XYZ feb 45 call @ 2.5 mkt value=47 since it's a call the breakeven is still strike price + premium = 47.5 cash in: -they get 2.5$ per share for premium -they get 45$ per share if buyer decides to buy it from them -total =47.5..... so the stock can increase to 47.5 and you still haven't lost money... (since you are short the posotion you have to buy it... so don't want to pay more than this price bc you can only sell it for 45 so you are immediately losing money after this (since already received premium=gives you a buffer)

treasury bills=discount securities=non interest bearing securites (ask yield)

short term maturities that mature in 1 year or less , can buy one with 4 week, 13 week, 26 or 52 week maturity. -similar to zero coupon bonds, these do not pay annual interest instead since they are always sold at a discount the difference between that purchase price and the par value paid back at maturity represents the interest ** quoted on discounted yield basis NOT as % of par value.. the yield represents the % discount from the face value of the security **** but since price and yield are inverse.... the numerically higher number (yield) will represent a lower price. -ask yield=coupon rate on other bonds to compare the yield to the t-bill. ask yield will always look bigger since it takes into account that interest is based on what is invested not on the face amount

REIT = real estate investment trust (3 types) and what is the tax benefit

similar to MF, it is a collection of something but in MF that is usually stocks/bonds but REITS concentrate investments in real estate activities three types: 1) mortgage/debt: an income play=when they issue secured loans that are backed by real estate purchases 2) equity: more of a growth play=owning/operating income producing real estate 3) hybrid: combo of both tax benefit: unlike traditional business where business is taxed, dividend is sent out, then investor is taxed at income level, there is no taxation (FOR REIT ONLY) on income if 90% of it is distributed. so for ex if they had 1mil of income and gave out 900,000 of it, not tax bill for them BUT money flowing to investors via dividend is taxable (but 20% is tax deductible), no passing through of losses -these fall under securities act of 1933 (must be registered with SEC and have prospectus delivered) -many trade on secondary market=trade throughout the day -bc of the tax benefit, they don't qualify for dividend exclusion rule that is found with other stocks -attractive for investors seeking current income in sum: they can lend $ like mortgages=bond like, loan backed by real property other times more speculative, they buy property and manage it with hopes it goes up in value

spread (ask, bid, etc)

spread=difference between ask and bid price=profitability of market maker, larger the spread=more MM makes bid=what firm will buy at/what client sells at ask=what firm will sell at/what client buys at -more actively traded securities tend to have more narrow spreads **markup (sell price/ask)/markdown (buy price/bid) is in addition to the spread

option premium breakdown (intrinsic and time value)

summary= premium=cost of option determine by supply and demand cost of option usually consists of 2 elements, instrinsic value and time value intrinsic value + time value = premium (which is determined by supply and demand) 1) intrinsic value= the amount by which the contract is in the money. if in the $ then has intrinsic value. premium is generally more bc buyer has right to exercise this up to some exp rate so they have to pay increase amount for this right/seller needs to be compensated for the risk involved with the time associated with this obligation. **if out of the money or in the money=NO instrinsic value at all... this is never a negative number. so the whole premium would be time value. -where the stock price is now helps determine instrinsic value before you decide to buy it.. if it is already at a premium if may be a good thing to buy 2) time value=additional cost in the premium, portion of premium that exceeds time value for description above. usually 9 months or LEAPS can be up to 30 months if the stock is at the money what is it's worth....(how much is time value worth/what determines it) 1) how much time is left till exp... if exp is tomorrow then now likely it will fluctuate much, if 5 mo left then likely many changes can happen (probably higher value to pay for this then) 2) market volatility=how likely it is to change, if very volatile then increase the time value

dividend dates ex

t/f declare div on june 1, payable on jul 25, to owners on jul 12 1) stock trades ex div on jul 11 - T 2) seller is entiteld to divident on a trade executed on july 10 - F (seller is not, BUYER is) 3) if securities aren't delivered by jul 12 a due bill will accompany the securities - T 4) cash trade can be done as late as jul 25 to receive dividend - F you wouldn;t be owner by the 12th if this was teh case

1035 exchange - annuity (investor must be informed about RR commission and possible surrender/redemption charges)

tax avoidance tool, allows you to swap from one annuity to another with no tax bc you were not happy with the annuity -RR may recommend this if you're unhappy with annuuity you can do this to swap one contract for another=tax free like rolling over IRA, etc. -FINRA research found that often times these exchanges had no benefit economically for the owner... but RR gets extra commission from this... -one catch is that there may be a surrender fee if offered too soon in the contract (you will have to pay this on your way out) **investor must be informed of all of the catches -intent of RR (commission) -possible surrender charges

order of payout for liquidation proceedings

taxes payable to IRS/unpaid wages --> secured creditors --> general/unsecure creditors --> subordinated creditors --> preferred stockholders --> common stockholders

OCC and options trading

the OCC guarantees transaction by always being other party in the transaction even tho not actually involved in the trading. they guarantee listed potion contracts (the ones that are listed on central exchanges)=eliminates counterparty risk between buyer and seller... doesn't matter who is on the other side of the contract bc the 3rd party OCC eliminates this bc they become a buyer for all sellers and a seller for all buyers -over the counter options may not be guaranteed by the OCC -deals with broker dealers not customers -creates/requires distribution of options risk tolerance doc which is called the (characteristsics and risks of standardized options) must be sent @ or prior to account being approved for options trading -regulate exchange traded options and settle with broker dealer T+1

U.S. Treasury - TIP

treasury inflation protected, since high inflation hurts bonds especially since an investor is holding onto them for a long period of time, this can change the purchasing power but specifically inflation hurts bonds for 2 reasons 1) purchasing power decreasing, if you i-rate is 4% but interest is 5% you are not keeping up with inflation= negative real rate of return 2) increasing inflation --> fed usually tightens --> increase i-rate--> decrease in bond price *** so the good thing about TIPS is that they have a fixed/stated coupon rate but the principal is adjusted based on the rate of inflation or CPI -at maturity you get the adjusted prinicpal not par and if there is deflation it is adjusted downward but never below $1000 so you always get par value at maturity so you get the greater of the adjusted value or par value - so for example say due to inflation the principal rises from $1000 to $1030 on a fixed 4% rate, then your annual interest is going from $40 to 41.2

U.S. Treasury - t-strip

treasury, separate trading registartion interest princiapl securities. these are not issued by the federal government, but created in the secondary market. a broker dealer or bank take the treasury note and separate each interest and principal payment as an individual security and if you buy it you are only entitled to that one payment --> creation of many zero coupon instruments from only 1 t bond or 1 note = not interest bearing -issued at discount and mature at face value -issued with variety of maturities **zero coupon treasury**

types of customer accounts (2 main types and 1 based on securites invested in)

two main ones: 1) cash account: customers agrees to buy securities in full 2) margin account: two types -1) long account=borrow $ from broker to buy securities, customers pays x% of costs -2) short account=where you sell securities without previously owning them. but you will eventually have to buy them= so you put $ down for this =client borrows one based on securities invested in: 3) options account: about type of securities you're buying, can set it up to be cash or margin account

receiving benefits - withdrawal (annuity), two ways to take money out

two ways to take money out 1) normal withdrawal 2) loans (later...we learn you can also annuitize) annuitizing (you lose control of the contract once you do this and the insurance co will pay you an income until you die) 1) withdrawal: if we remove $ before age 59.5 this distrbitution if taxable but also there will be additional penalty. the annuitant is in control of the timing and amount they are taking. if you put in 100K and it grew by 200K, and you want to take out 25K that comes out of accumulated earnings first (LIFO=last in first out) meaning that the entirety of this dist is taxable bc it is all earnings. ** only this earnings portion is taxable, not the original contribution** 2) loans: considered taxable, can pay myself back as interest is charged against this dist, this interest decreased your total number of accumulated units

prepaid tuition plan (muni fund securities)

type of college savings plan many state offer. it allows you to pay a lump sum to the state and they will give you admission to a prelisted list of schools that are in that state, assuming the student meets certain other requirements -the state does a backwards calculation based on tuition costs in the future and they say pay me an amount right now and you will get access to much larger tuition costs when ready to use -investor buys college tuition credits and locks in the tuitition costs at the current level=protects against future costs

fidelity bond (what does it cover and what doesn't it)

type of insurance that must be obtained by broker dealer. it is insurance coverage from losses from: 1) fraudulent trading, loss of securities, forgery DOES NOT cover bankruptcy OR errors and omission of b/d if the bond is substantially modified, termed, cancelled then FINRA must know immediately *amount of coverage is based on firms net capital*

registration requirements (u4, what is it, what are the items under it)

u4: application for securities registration. must be sponsored by b/d and must file this form with fingerprint card with CRD (which is the central registration depository) -no sponsor needed to take SIE exam but one is needed to take registration exam like series 7 -items under u4: name/alias, address, personal data/identifying info, info re any past violations (not limited to past 10 years)

bond characteristics - initial interest payment (long vs short coupon)

used to be on 1st of 15th of each month, but new bonds pay interest started the date on which it begins to accrue thus the first payment may be more or less than 6 months (if it is over = long coupon and if it is for less than six months = short coupon

MF fees and charges (5)

what is costs to own fund on ongoing basis -sales charge is not ongoing -advisory fees: paid to investment advisor for advice=largest portion of fees, asset based NOT transactional -12b-1 fees: for underwriting etc -redemption fees: penalizes quick exit, charge for getting out too early -admin fees: for custodial bank and transfer agent costs

treasury stock

when a corporation issues and subsequently repurchases it's own stock. as long as it remains in the treasury, it has no voting rights and does not receive dividends. treasury stock shows up as informational item on corp's balance sheet

dollar cost averaging (DCA) what are important RR disclosures re this? (4)

when investors try to take this fear/emotions out of investing and invest fixed number of shares or put away X dolllars regardless of market conditions (what we do with retirement assets etc) =method of investing involving making the SAME PERIODIC investment regardless of share price over fixed period of time= number of shares bought changes since if price decreased you will have more shares and vice versa bc based on dollar amount NOT shares -important disclosure RR must tell: 1) this does not guarantee a profit 2) no promise of LT growth 3) prices can change 4) contributions must continue even when prices decrease, otherwise losses occur

5/7 prohibited trading practices - interpositioning

when you insert another b/d between customer and best market ex) clients wants to buy ABC, which can be bought out of that firms inventory = they would act as the principal or you can buy from another firm acting as agent and charge client commission.... generally this is prohibited if detrimental to the customer but if you can show advantages to customer =not strictly prohibited

equity indexes (4)

wilshire: largest index of 5000 stocks russell 2000=focus on small cap stocks (small company) nasdaq composite=all nasdaq listed securities nasdaq 100=largest 100 companies on nasdaq

business continuity plan (BCP) (6 things it has to include)

written plan identifying procedures to be followed due to emergency or significant business disruption, this must be made available to FINRA on request though is not required to be filed with FINRA = A policy that defines how normal day-to-day business will be maintained in the event of a business disruption or crisis. -must address each of these 6 points 1)regulatory reporting 2) communication with regulators (SEC/FINRA) 3) communication between firms and clients and firms and employees 4) emergency contact info (finra requires 2 people: 1 must be part of senior management and a registered principal) 5) alternative locations/ back up sites for people to work 6) ensuring mission-critical systems (computers) continue to process transactions promptly Data backup and recovery (hard copy and electronic); All mission critical systems; Financial and operational assessments; Alternate communications between customers and the firm, and between the firm and employees; Alternate physical location of employees; Critical business constituent, bank, and counterparty impact; Regulatory reporting; Communications with regulators; and How the firm will assure customers' prompt access to their funds and securities in the event that the firm determines that it is unable to continue its business.