Series 7

What to look for when analyzing revenue bonds?

Debt Coverage Ratio: Available revenues/debt service requirement

Moral Obligation Bonds vs double barrel vs NHA/PHA Build America Bonds (BABs)

If revenue or tax are inadequate the STATE (not muni, local, etc) CAN (not obligated back the bond -While double barrel is backed by state or muni So: Moral=state double barrell=city or county NHA=US gov Not tax exempt muni bonds

What muni bond is backed by the US (3 names)

New housing authority bond Section 8 bonds. PHA

Short Stock + short put

SS

Break even for a straddle Breakeven for a call spread Breakeven for a put spread

call strike+ premium put strike - premium lower strike + net premium higher strike - net premium

What happens if if a broker-dealer has an advisory relationship with a municipality,

must disclose to clients

Dividend taxes

qualified dividend are taxed at long term capital gains which is lower than unqualified dividends at ordinary income - taxed as portfolio income

When reporting to the IRS, you want to maximize tax losses and minzimes gains through what 3 methods Which one does IRS ASSUME if none chosen

share identification - the investor keeps track of the cost of each share purchased and uses this information to liquidate the shares that would provide the lowest capital gain. (most flexible) FIFO - in a rising market this creates a bigger tax consequence average cost basis - you just take the average but only for mutual funds not stocks ---FIFO

Long stock + short call

ss

Shareholder equity includes

capital stock at par, capital in excess of par, and retained earnings. Basically the capital structure minus the assets (capital stock) and liabilities (long term debt)

Margin securities examples

warrants!

x

x

Vix is created by

cboe (not occ)

Investment companies/ Investment company act of 1940 What is not included

classifies investment companies into 3 broad categories -UIT -FACS -Managed (open & closeD) Holding companies and variable annuities but the separate account is (its usually at UIT)

What two options strategies have the same strategy Bullish or bearish? Breakeven?

combinations and straddles Both are a long long or short short and have a call and a put and thus aren't bullish or bearish You make money off a short short by keeping the stock in the range off the call+premium and put-premium and thus want stability Do. long long short short example You make money off long long by the stock breaking out of that range and thus want vol

Net investment income from a mutual fund ? What comes from NII How are dividend distributions taxed**

(Dividends + interest) - expense of the fund AKA DIVENDS COME FROM NET INVESTMENT INCOME NOT CAPITAL GAINS -whether you reinvest the dividends or take the cash, it is taxed

Not Held (NH) Orders (3) Is this on the order display book?***

- a market order where the broker has full discretion to choose best time and price -Day orders unless stated GTC -Market order! -No, market orders are not on the order display book1

Mediation vs arbitration What can you do once mediation begins

- if mediation takes place and is not successful, the dispute moves on to arbitration, and thus not binding. -And then A mediator in a dispute may not serve as an arbitrator in the same dispute. -Once mediation begins, either party may withdraw at any time without the consent of the mediator or the other party

Simple Plan requirements (3) Best for who? Catch up provision

-100 less employees -who earned 5000 or more last year -and don't have another employment plan in place -small business wanting to have an inexpensive retirement plan -catch-up contributions up to $3,000 for those age 50 and older.

Western account syndicate Eastern account syndicate

-A Western account is a divided account. -Each underwriter is responsible only for its own underwriting allocation. -If you don't sell your allotment, you have to purchase it for your own inventory as a liability -eastern account is undivided (you share) -even if you sold your allotment, any left over bonds are realloced to you as a liability based on your participation.

Backing Away

-A market maker can revise a firm quote in response to market conditions and trading activity, -but a market maker who refuses to do business at the price(s) quoted is backing away from the quote. Backing away is a violation of trading rules.

Good Delivery for partial orders

-A partial order is a good delivery if the left over (unpaid) amount is a round lot. -EX. Delivering 200 shares to satisfy a 300 share sale is a good delivery because the left over is 100, but delivering 250 is not since the leftover is not round (50).

1035 exchange Pro Con 3 things to know**

-A tax-free exchange between similar annuities or life insurance, either between the same or different companies -cannot be used for transfers from an annuity to a life insurance policy but can any other way (life to life, life to annuity, etc) -Cons are that you can be charged a surrender fee or lose a possible higher death benefit on the old policy -must be available for 24 months aka two years -no medical underwriting needed -the age of the policy stays the same in the new contract when calculating premiums

Which preferred stocks don't have interest rate risk Inflation risk?

-Adjustable-Rate Preferred:This is because its income isn't really fixed. When interest rates go up, so does the dividend. -Convertibile: since the value of the stock is based on the underlying stock price, not rates -Preferred stock does not typically have the same growth potential as common stock. That makes it subject to inflation risk.

Pre-arbitration dispute agreement? Important point> Absence of an arbitration agreement? -If a customer requests to see the preiispute arbitration agreement she has signed, What type of dispute is not allowed under Arbitration

-Advantages: no court, decision is BINDING (no appeal) -In the absence of a signed arbitration agreement, a customer can still force a member to arbitration, but a member cannot force a customer to arbitration. the firm has 10 days to give it to her -Class action suit which is when a group under the same name sues an entity

Refunds Provisions for variable life insurance policy Also called what? Also, what about sales charge

-Also called free look period: 45 days from the execution of the application, or for 10 days from the time the owner receives the policy, whichever is longer, you can get the premiums you paid back -from 45 days to 2 years there is a partial refund of the sales charge but after two years, if you surrender the life insurance you surroudener the whole cash value (no more refunds)

safe harbor agreements Whats not included

-An advisor will get benefits for trading a clients stocks with a BD. Called soft dollars if you don't use the benefits for the client -Those benefits include free research, stock analysis software, investment seminars the BD will give you for trading with them -basically anything non finance related like travel expenses, office furniture, software NOT related to security, rent.

To which of the following firms could a member grant concessions or other allowances?

-Another member firm (not suspended) -A foreign nonmember broker-dealer ineligible for FINRA membership

The technical term for missed dividends is ____ and associated with

-Arrears and cumulative preferred -

Issuing bonds on a balance sheet

-Assets will be affected (increased) by the issuance of long-term bonds. -Liabilities will be affected (increased) by the amount of the issuance.

When are option taxable capital gains and losses determined

-At expiration (lost) -If sold early (either gain or loss) -Not at EXERCISE since, the underlying security must be sold first.

Subject quote workout quote Mainpoint:

-Both are approximate (not a firm quote) quotes -Subject quote: A quote that would need further confirmation. "How is ABCD doing today?" The representative could respond, "Last time I looked, it was 38 to a half," or "I think it is about 38-38.50. -Workout quote: Either the order size is too big for the market to absorb without disruption, or the market is too thin or temporarily unstable. They both are just indications and unsure quotes

Rights of accumulation vs LOI

-Both have to do with investing more money to get a breakpoint sale -ROA allows appreciation and dividends to count towards reaching the breakpoint while the LOI does not -Also the ROA has no time limit

What muni is not tax exmept What is provided instead?

-Build America Bonds (BABs) -tax credits are provided instead of tax free

BDC

-Closed end investment company regulated un investment company act 1940 -The main difference is BDC's act an an operating company and take a managerial role in the companies they invest in -70% of its assets must be invested in eligible assets -eligible means they either are not on an exchange or market value is >250m

Advantage of a DPP over a corporation

-DPPs allowed losses to pass to the investor and the investor can use the losses to lower tax.

ELN/ETNs

-Debt instrument despite having equity in it -Payout at maturity is depending on a stock or index underlying performance -Same risks as a bond (credit, unsecured, redemption, call risk) + market risk

All or none

-Does NOT need to be immediate but must be filled in its entirety -Can be GTC or a day order

How do ETF differ from MF How do HF and MF

-ETF can use margin and short -HF and can use margin and short

ordinary income has 3 parts Separate but relevant: What is portfolio income and how is it taxed

-Earned income - salary -Investment income - interest from bonds and dividends (NOT Capital gains from stocks) -Passive income - income from LPs and real estate -dividends, interest, and net capital gains derived from the sale of securities. -taxed in the year in which it is earned.**

Postfiling What products?

-Filing 10 days WITHIN first use (vs prefiling which is BEFORE 10 days of first use) 4)DPPs, CMOs, ETFs, (not reits), investment companies like UIT and MFs

75-5-10 For who? DONT GET

-For diversified management companies -At least 75% of the fund's total assets must be invested in cash and securities issued by companies other than the investment company itself or its affiliates. -25% can go to anything -no more than 5% of the fund's total assets are invested in the securities of any one issuer -no more than 10% of the outstanding voting securities of any one issuer is owned (by the 75%). Do screenshot called 77

Coterminous Debt ? What type of bond? * What kind of taxes What types of regions?

-GOs -Bonds issued by different municipal authorities that tap the same taxpayer wallets for property taxes -Cant overlap with states because states don't have property taxes

Rule 144a

-Has to do with Sale of restricted stock by institutions allows nonregistered (RESTRICTED stock) foreign and domestic stock/securuites to be sold to certain institutional investors in the United States without holding period requirements. To qualify for this exemption, the buyer must be a qualified institutional buyer (QIB). A QIB must have a minimum of $100 million invested on a discretionary basis and cannot have any affiliation with the entity selling the securities -Must file a 144a

Oil and Gas DPP expenses that you can use to reduce tax DEDUCTIONS NOT CREDITS

-IDC (intangible drilling cost): 1) deductible in year 1, no salvage value like fuel, wages, insurance -Tangible drilling costs: Deductible over years, Has salvage value (storage, equipment) -Depletion allowance: tax deductions for the decreasing supply natural resources (oil, has, timber, mining)

Customer trade confirmations (not statements) (4) ** Delivery? COME BACK TO

-If BD was broker or agent, principal, market maker and their name phone number, address -customer name and address -Settlement date -call provisions with specific dates -control relationship -Customer must be delivered confirmation of the trade at or before settlement date and the confirmation must be kept for 3 years. However, broker-to-broker confirmations must be sent (T+1). Do confirmation example

Regulation FD (full disclosure)

-If any material info is made to an analyst or a market maker, it must be immediately made to everyone to make it fair -If the disclosure was intentionally, it must be made to the public at the same time -If it was unintentional, it must be made promptly (no later than 24 hours or the start of next trading day, which is ever is longer )

Regulation T (but using securities not cash)

-If the market value of your account is 60,000 but instead of depositing 30,000 cash to meet the 50%, you can deposit DOUBLE the minimum cash deposit (30,000 x 2) worth of securities so 60,000 worth of securities and then borrow the 30,000maintenance requirement

What does the income statement show vs balance sheet

-Income statement shows money left over after expenses (discretionary income) and ability to make ongoing contributions (to lets say an IRA) -Balance sheet shows lump sum availability

Non interested party

-Investment company act of 1940 states at least 40% of the BOD must be Non interested board members which are: members are brought in from outside of the company to represent the views of the shareholders and, therefore, are not otherwise employees of the Investment Co.

GPs can GPs cant

-Legally Fiduciary -can maintain a financial interest in the partnership (must be a minimum of 1%) -borrow from the partnership -comingle funds -admit new GPs and LPs

sole proprietorship aka

-Like an individual account -All income (or loss) is that of the individual thus you can lose EVERYTHING

Hedge funds are organized as x and thus only need __ Vs prospectus What also gets this?***

-Limited partnerships and only need to provide a private offering memorandum which is far less transparent than a management company prospectus since it does not register with SEC -A DPP provides receives a private placement memorandum instead of a prospectus

GNMA Taxed? Risk? non risk? Liquidity Difference between CMO(don't confuse with a CMO)

-MBS -1,000 minium -taxed on all levels -pass through certificates -high reinvestment risk, interest, and extension since its ABS -Dont have credit risk since backed by US -interest AND PRINCIPAL PAID MONTHLY -CMOS the principal is paid back one tranche at a time and GNMAs are liquid as they trade publicly -only agency backed by US

market-wide circuit breaker What can you do during a halt? What about for options?

-Market will halt during a 7% decline for a level 1 and 13% decline for a level 2 halt for 15 minutes IF before 3:25 -Market will do a level 3 halt during a 20% decline at any point for the day and the halt will be fore the whole day -You cant buy or sell, but you can cancel open orders -still can issue exercise instructions to the Options Clearing Corporation

Modern Portfolio Theory

-Minimizing portfolio risk by combining uncorrelated assets -You can diversify unsystematic risk (like financial risk, business risk, interest rate risk)

Regulation T - Long accounts? Short accounts? Any securities exempt?*******Whos chooses this??? What securities can be purchased on margin and who decides this*****? In a restricted margin account, if a customer fails to pay for a new purchase, the broker-dealer must sell out stock with a value of

-Must deposit the greater of 50% of the market value in a margin account, 2,000, or the full purchase price if less than 2000 -either 50% or 2000 (not -Treasures, gov agency, and munis are exempt from the 50% rule and SRO or DEA -Only stocks, bonds and warrants, non nasdaq etc approved by fed -Fed board decides this *** -If you're selling stock, you must sell twice the value of the margin call. (question 21 in unit 16 q bank) EX. Margin deposit and Margin deposit

Whats on a U4 (4) What is the Disclosure reporting page (DRP) How long do you have to report a change one of these things (lets say you move addresses)

-Name, address -5 year resident -10 year employment -disclosure of an arrest or conviction -Disclosure reporting page on the U4 where it asks about disciplinary actions 30 days -Remember a U4 is used to register someone as a RR

Nasdaq Level 1 Nasdaq Level 2 Nasdaq Level 3

-Nasdaq Level 1 Available to RR and shows Inside bid and offer: highest bids and the lowest asks Nasdaq Level 2 -1) Available approved subscribers only and 2) shows the inside quote plus quotes from all market makers 3) but the quote is firm and cant change. EX. Market maker 1 : bid 1xx ask 1xx, Market maker 2: bid 3xx ask 3xxx Nasdaq Level 3)same as 2 but you can change the quote

What do you need to open a cash account for a corporation (not a margin account)

-New account form -corporate charter for proof the corp exists -corporate resolution to designate natural persons authorized to trade the account AND ACCOUNT TRADING LIMITS

Functional allocation

-Oil and Gas DPP -The LPs receive the immediate tax write-offs from the intangible drilling costs, whereas the GPs receive continued write-offs from the tangible costs over the course of several years. -LPs and GPs share equally in the revenues

Which orders are reduced for cash dividends? When will the stocks decline? Do Not Reduce (DNR)

-Only those placed below the market price aka BLiSS (buy limit, sell stop) -Stocks decline by their dividend on the ex date, so orders like buy limit and sell stop will inadvertently execute during these times so the DMM automatically reduces BLiSS orders to prevent this the customer does not care if there is an execution due solely to the ex-date reduction.

closed vs open end funds

-Open-end companies can never sell at NAV + sales charge of max 8.5% and thus sell their ask or pop above the nav - closed-ends frequently sell (ask or pop) below nav -open-end company can only issuing common stock while closed end can issue preferred, common, and debt HOWEVER both can contain everything Do. nav vs ask SS

Joint tenants with right of survivorship AND TENANTS IN COMMON. What can the parties do?

-Orders and mail can be directed to either party -Disbursements of cash/check & distribution or securities MUST be in the name of all parties

ECN Acts as a

-Part of OTC -electronic trading system that automatically matches buy and sell orders at specified prices -4th market trades are through ECN -Its 24 hours but after hours trading could have price, and volume liquidity issues -institutional and individual investors to trade anytime.

Retail communications need what? Do all retail need this? Correspondence needs what institutional communications don't need what

-Preapproval from a principal or submission to FINRA&SEC is required (before use of the product). Tricky but not all retail communication needs principal approval - EX. if the communication doesn't have to do with reccomendating an investment -Pre- or post-REVIEW of a principal is required, but no APPROVAL is mandatory. -No Preapproval from a principal or submission to FINRA/SEC if The firm either has 1) has the communication reviewed (not approved) by a principal or 2) the firm is trained and educated pg 488

If a registered person wants to be employed by or accept compensation from an entity other than the member firm, that person must

-Provide written notice BUT permission is not required or requested

What risk is associated with fixed annuitys

-Purchasing power or inflation risk -Fixed AVOIDS market risk, unlike variable annuities

When a customer wants transfer its securities from one firm to another which is ACATS, what is the process*** Two characteristics of TIF**

-Receiving firm sends the TIF (transfer form) IMMEDIATELY to ACAT (not carrying) -Carrying firm has 1 day to validate the securities on the TIF -within three business days following validation, the carrying firm must complete the transfer of the account. -Must be signed and immediately sent to ACAT

private placement - what rule for exemption? Advertising? can sell to

-Regulation D where private placements are exempt from register with SEC and providing prospectus, hence why its called Unregistered stock -may be advertised/solicited if all of those solicited are accredited investors. Otherwise you cant at all. -You can sell to an unlimited # of accredited investors and 35 nonaccredited investors Do screenshot "nonaccredited investors"

Reporting an Error (not complaints) Action? kept for how long?

-Report to a principal or supervisor and should be made immediately in writing -They can correct an error but never a RR or rep -retained for three years

3 components of an income statement Pre tax income aka ____

-Revenue/sales, COGS, pre tax income (aka taxable income which is how much is left before taxes)) Pretax income=operating income - interest payment expense -^ Interest payments reduce taxable income -Dividends are paid with after tax dollars and thus taxed twice

Dissolution of a DPP

-Secured lenders -Other credits -LPs claim to profits, and then claim to return of contributed capital -GP fees, and then profits, then capital returned LPs get no money back unless the above are paid back or its a recourse loan EX. LP SS

Regulation A+: What is given

-Small and medium corporate offerings are exempt from registration -Securities offerings have to be lower than 5o million in a 12 month period -notice of sale, or offering circular are given instead of a full prospectus.

S corporation Taxed how?

-Taxed like a partnership where the profit and losses pass through to the investor and you can get the tax deduction -but offers investors the limited liability of a corporation -Unlike an LLC, you cant have unlimited members. Can only 100 share holders.

Bond Key points 6% semi annual Nominal yield = Bond price is 90 1 point - 1 basis point of a bond =

-The 6% coupon is always stated annual so its 30 dollars every 6 months -Nominal yield = coupon rate -Always multiply the price by 10 -$10 =10 * .01 = .10 cents

How are treasuries taxed Capital gains or losses?

-The interest/coupon (for a t-bill the difference of the cost and principal) is taxed as interest income by the fed, not state or local -If you sell the treasury, the capital gain or loss is the same as a stock

UGMA/UTMA custodial account rules: SS? Tax? Margin? How many people per account?*** GIFTs and transfers**?

-The minor's Social Security number is required -Everything is taxed to the minor -No margin, CAN ONLY BE A CASH ACCOUNT -Only can be one minor and beneficiary per account BUT YOU CAN BE IN MULTIPLE UTMA ACCOUNTS -gift and transfers are irrevocable

Position limits for options are measured by the number of contracts on the same side of the market which means group of investors cannot avoid the position restrictions by intentionally splitting a large position to circumvent the limits aka acting in concert which means

-The same side is bull or bear -If the position limits 10,000 contracts then you cant have 5,000 calls and 6,000 short puts because they are both bullish but you can have 5,000 calls and 6,000 puts because one is bullish and one is bearish - if I am acting in concert with John and we each have 6,000 contracts then we are above 10,000 and breaching Do limits screenshot

Types of Underwriting Agreements Firm Commitment? Whats a type of firm commitment? Best Efforts

-The underwriter(s) buys all the shares from the issuer and resells them, thus taking on all the risk -Thus acting as a principal -can be negotiated (corp) or competitive bid (muni) -Standby - rights offering page 509 -underwriter sells as much as possible, without financial liability for what remains unsold. -acts as an agent

How much does the issuer get paid when they sell a bond What does the customer pay if they buy the bond from the syndicate? If they buy the bond from the secondary market How much does the bidder or syndicate get paid? What does it consist of?

-They get paid the offering price (price the investor buys the bond at) - the spread (all the fees paid to the syndicate) -public offering price or reoffering price. If they buy from the secondary market then they also have to pay a commission to the agent or a mark up or down from the principal -The spread which consists of the management fee, additional takedown, concession

FINRA Rule 2330 What should the RR think about when a client says he's exchanging contracts?

-They should consider whether the customer has had another deferred variable annuity exchange within the preceding 36 months. -A RR should think about how long they have had that contract^ AND if they are funding this new annuity by cashing out/exchanging an old one, then the term-99RR must rethink if he's making a suitable recommendation by telling that client to buy this new annuity. Cashing out a policy has surrounded fees which is something to think about.

What do you know about CMOs How do they pay Backed by what and thus? How do they trade Denominated how Maturity date

-Type of MBS -Interest is paid monthly pro rata while principal is repaid one tranche at a time -backed by mortgages (not real estate) on single family residences securities are Fannie Mae, Freddie Mac, and ginnie mae and thus have LOW CREDIT RISK -denominated in 100s but minimum purchase is 1000 -trade OTC -No fixed maturity date due to prepayment and extension risk

Cash dividend DISTRIBUTED on a balance sheet Dividend DECLARED

-When a company pays a cash dividend, the dividends payable (a current liability) and the cash account (current assets) are reduced by the same amount. -reduce retained earnings (part of shareholders' equity) and increase current liabilities (dividends payable), which will increase total liabilities. Assets are not affected until the cash is paid out several weeks later.

If your DPP loses 1mill how much do you lose

-You can only lose your initial investment, nothing more

Tender offer Net long shares? DAYS?

-You can only tender the amount of net long shares. If you have 100 shares long and 60 short, you can only tender 40 -The target company must provide its shareholders with a statement (accept, ignore, reject) within 10 days -Tender offer must stay open for at least 20 days unless withdrawn

The 5% mark up policy - What do you use as the basis for the 5% rule Does not apply to what? Can you charge a markup and commission

-You consider The highest bid and lowest ask for all market makers (not the price you paid for it) -You divide the highest bid or the lowest ask (the inside quote) by what the dealer charged to buy or sell a security to the client and that is the markup. -However 5% is not the limit. You can charge more than 5% depending on the circumstances -Does not apply to variable annuities, mf, ipos, munis aka prospectus issues, issues sold at a fixed price, and exempt transactions. -Can never charge a markup and a commission

Letter of intent

-You have 90 days after you make your first deposit to sign the LOI -You have 13 months to deposit more money into the fund but you will get the breakpoint as long as you follow through

Maintenance requirement for a long account? For a short account? When is an account restricted and what are the rules? What is the retention requirement?

-Your equity must be > 25% of the LMV aka the value of the stock in the account or you will get a margin call -Minimum initial dollar amount must be 2000 or 30% (which ever is greater) for a short account before you get a margin call -If the equity in the account drops to less than the Regulation T (50% of LMV) requirement but greater than or equal to the minimum maintenance requirement (25% OF LMV), the account is restricted. -Lets saying you buy 100 shares at 60 so the LMV or account value is 60,000. You put up 30,000 in equity, debt is 30,000. The stock drops to 50. LMW is now 50,000, debt is 30,000 and equity is now 20,000. The account is now restricted by 5,000 since 50% of 50,000 is 25,000 and my equity is only 20,000. Now here are the rules: -If securities are sold in a restricted account 1) If she withdraws the proceeds then at least half the proceeds must be retained in the account to reduce the debit balance. This is called the retention requirement. Also, 50% of the proceeds are credited to SMA 2) If she keeps the proceeds in the account, it goes pay down the debt so the proceeds get added to the LMV and reduces the debt balance. Remember you must sell securities that amount to double THE RESTRICTION Page 432 example LMV screenshot

MFP DONT GET

-a municipal financial professional (MFP) -Any muni activity other than retail sales. Those activities can include the solicitation of municipal bond business. NOT municipal securities professional (MSP)

Numbered account What do they need What must be provided?

-account identified with a number, not a name. -Owner must file a written statement attesting to ownership -a signature card** -Celebrities do this

Income bonds aka ___

-adjustment bonds-issued by corporation coming out of bankruptcy -only pay interest when the board says it can and when it has profit to pay interest EX. SS "Answer is C. Dont mess up"

Balanced Fund

-adjusts between fixed income and equity based on market conditions (not a specified date like a target date fund which increased fixed income as they get oldeR)

The Securities Act of 1933 exempts This exempts types of corporations that issue securities (remember corporations need to register unlike munis, treasuries, etc)

-aka. you don't need to provide a prospectus or register Regulation A+: Small and medium corporate offerings Regulation D: Private placements Rule 147: Securities offered and sold exclusively intrastate Regulation S: Offers and sales made outside the United States by U.S. issuers

Exchange privileges Salient point?

-allow an investor to convert an investment in one fund for an equal investment in another fund in the same family without incurring an additional sales charge. -So if you get older and want out of XYZ Growth and into XYZ Income, you can convert with no expense -TAXABLE EVENT.

As soon as an order is placed what happens What happens next

-an order ticket must be written (does not matter if its a sell stop or any other type of order) -Order is sent to order book>execution report>Trade is reported to Consolidated Tape or Nasdaq>Customer confirmation is sent and copied to registered representative.

Public communication (seminar, etc) What is not allowed

-an unscripted presentation that needs no principal approval. -If it is scripted and there are slides, then you need principal PRE approval -Cant give predictions of performance but you CAN discuss past performance

What does quotation and quotation request mean for municipal dealers

-any bid for or offer of municipal securities -any indication of interest of solicitation by a muni dealer (such as bid WANTED or offer WANTED) is considered a quotation request

if you're entering a private securities transaction that entails earning compensation the member firm can ____ A) If there is no compensation. B) If no compensation and they are a family member __

-approve or disapprove.If it approves member needs to supervise. -need to provide a written noice. You don't need written approval

The OCC duty (2)

-assigns the exercise of an option to a member firm that is then responsible for paying the broker-dealer representing the seller of the stock. -issuer of all listed options .Ex if you exercise a put,

when do you get your interest for muni anticipation notes (ban, can, Tax-exempt commercial paper, ran,)

-at maturity since its a short term money market. No interest and thus issued at a discount

Account name and designation changes (Switching from a JTWROS to an individual account)

-authorization by a principal -inform principal of essential facts -must be all in writing and in customer account records

Subchapter M of Internal Revenue Code Applies to what kind of funds? Does not apply to who

-avoiding triple taxation -a fund must distribute at least 90% of its NII (net investment income) to shareholders. The fund then pays taxes only on the undistributed amount and not on the distributed amount -Applies to open, closed, UIT,ETF, REITS BUT NOT DPP

Regulation SHO Exception?

-before the short sale of any equity security, firms must locate the securities for borrowing to ensure that delivery will be made on the settlement date. -The regulators refer to this as affirmative determination. -Only for stocks, not bonds

2 characters of Footnotes

-bottom of page and can be several pages long

Unlawful acts for a prospectus

-cant be altered (highlighted, market) -Cant point out a specific section even if the customer asked highlight screenshot

Closing sale vs closing purchase

-closing sale: buying an option and then selling it -closing a purchase: selling an option (Writing) and then buying it back

Financial Industry Regulatory Authority (FINRA) has three classifications of communication with the public IMPORTANT: WHAT TYPE OF COMMUNICATION How long must you maintain these records? Written= Remember?

-correspondence is communication to 25 or fewer retail investors in a 30-day period for prospect and clients -THIS IS FOR WRITTEN (NOT PUBLIC) communication -retail communications is to more than 25 retail investors in a 30-day period for prospects and clients -institutional communication is going to banks, insurance companies, and mutual funds, et cetera. All these must be maintained by firm for 3 years. All written communication includes electronic communication -Remember its under a 30 day period not over

Before you do anythinggg with a discretionary account what must happen

-customer has given you written authorisation -principal/brokerage firm must sign off on it in writing

Bond indenture or bond resolution (not trust indenture) aka ____ and shows what

-deed of trust -the terms of the loan Mainly bond characteristics (maturity, call feature), issuer responsibility, and covenants

Option spread (3)** call spread and put spread

-different strategy (one has to be long and one has to be short) -same security -call spread is long call and short call -put spread is long put and short put q13 unit 10

accredited investors also includes

-directors, officers, GPs -institutions with net worth over 5m -banks, insurance, investment companies

Short swinging (associated with rule 144) aka Another term?

-disgorged -any affiliate of a public company sells company stock for a profit without holding for a six-month period of the purchase, they must return that profit to the company.

C Corporation**** Taxed how

-distinguishes the company as a separate entity from its owners. -officers and directors, and share holders are shielded from persona liability -taxed normal aka twice unlike S corp and an LLC

Its a discretionary trade if I (the advisor) pick without the client telling me to****

-either to buy or sell the stock -the amount he is investing, -what stock or asset to be invested/ # of shares bought so if the client doesn't tell me one of these 3 things and I pick it, its discretionary If the broker just picks the time the stock is bought/sold or the price to buy the stock without client approval, it is not considered discretionary EX. SS discretionary

Whats mandatory and whats the exception for defined benefit and defined contribution plans

-employer contributions are mandatory except for 401k and profit sharing plans

What is the Assumed Interest Rate (2)**** and what does it impact*** and not impact

-estimated performance target for the separate account required to maintain the level of annuity payments. -monthly payout : If the separate account performances beat the AIR, the death benefit and annuity unit VALUE (not # of units) go up. Vice versa, they go down. -Does not impact the cash value or accumulation unit since that period is over AND THE # OF ANNUITY UNITS (only the annuity unit value changes) EX. anuuity unit value SS

Types of products/entities (not corporations like below) Securities Act of 1933 exempt from federal registrations Which type of short term debt? (5)

-gov, muni obv -banks and savings and loans -Commercial paper—maturity less than 270 days -Bankers' acceptances—maturity less than 270 days -Securities acquired in private placements—Regulation D

DONT GET Incorrect Trade Reports

-if the customer order was for 200 shares and the trade was reported as 300 shares, the customer is not obligated for the extra 100 shares -If a trade is reported wrongly by the RR for 25 when it executed at 25.30, the customer is binded to 25.30

credit call spread is bullish or bearish debit call spread bullish or bearish

-if you're making money off the premium since you're buying a low premium and selling a high premium, then you don't need the option to exercise. If you don't need the option, and in this case the call, to exercise, then you want it to go down, and thus you're BEARISH -debit spread you're losing money off the premium, thus you want an exercise, and if its a call you want it to go up so its bullish

alternative minimum tax calculation What should you consider** What are tax preference items that are used to compute AMT?

-industrial revenue bonds are issued for a corporation's benefit and not for the public so don't get the tax fee benefit -intended to build or acquire factories or other heavy equipment and tools. -secured by the lease payments paid by a corporation. *the clients tax bracket as this bond if they are in a high tax bracket will not be tax exempt *excess intangible drilling costs (wages, fuel, repairs). accelerated depreciation. percentage depletion in excess of basis, state and local taxes. THIS IS BASICALLY TAX EXEMPT STUFF YOU KNOW THAT DOESNT COUNT

Fourth Market Types of stock? Placed through what? (3)

-institution-to-institution trading to avoid the use of broker-dealers -large blocks of stock, both listed and unlisted -placed through electronic communications networks (ECNs) which are 24 hours -

follow-on offerings.

-issued in the primary market but are subsequent to the IPO

What are the two exceptions to regulation T

-its only for initial deposits so if youre just buying and sell out of an margin account you don't need to deposit the 50% anymore -muni, treasuries, gov agency

auction rate securities (ARS). Maturity?

-long term munis -reset the interest rates at short-term intervals (every 7, 14, 28, or 35 days.)

equipment trust certificate SEC?

-mainly transportation companies like railroads and airline companies -how they finance the purchase of equipment by putting down 20% and paying the rest off over time -backed by the lease payments the company gets -exempt from sec registration

Advancde/decline is indicate of

-market breadth and relative strength -Bullish or bearish is not determined by how the index is moving, but only the advanced/decliining ratio so don't get caught off guard if the index is moving other way than the ratio

Real Estate DPP expenses that you can use to reduce tax (4) What assets can you depreciate? Which saves you the most money

-mortgage interest expense -deprecation of building aka fixed and equipment -expenses to the improvement of the building -Tax credits (saves you most money) for government assisted housing or rehab projects

Serial Maturity

-muni bonds -maturing on different dates -quoted by YTM

Why is short selling munis seldom done

-muni market is too thin

SEC disclaimer Approve and disapprove

-must be on the front of every prospectus -The SEC does not approve or disapprove things—it clears or releases issues of securities for This has to do with the final prospectus for issuing a security/Securities Act of 1933

Good Delivery for Bonds

-must show all unpaid coupons: past, current, future

Restricted person (not restricted stock!)? cant do what? for what security*** Dont confuse with restricted stock What do you need to present?******

-not permitted to purchase any shares of a new STOCK (NOT BOND)issue unless an exemption applies. --RR-member firms -employees of member firms -finders and fiduciaries (attorneys, lawyers, consultants) -PMs -10%> -family (except grandparents and aunts/uncles/nephews/niece) -any person who they provide financial support to or live in the same house -Before buying an IPO you need a signed letter stating your not a restricted person EX. ISSUER (remember it has to do with the underwriter BD and their family not the issuer

Steps to set up an options account What happens if the clients financial status changes before account open

-obtain essential facts about the customer -give the customer an options disclosure document (ODD) GIVEN AT OR BEFORE ACCOUNT APPROVAL -have the manager approve the account -enter the initial order, and have the customer sign the options agreement within 15 calendar days. If the signed option agreement is not returned within 15 days of account approval, the initial order is not approved. -The client must agree that any material change in financial status requires the broker-dealer be notified and the options agreement be amended.

Whats unique about an immediate annuity

-obv no periodic payments

Planned Amortization Class CMOs (PACs Tranche) vs Targeted Amortization Class CMOs (TACs Tranche) vs Zero-Tranche CMO (Z-Tranche) ***Who has the shortest tranches

-offer protection from prepayment risk and extension risk due to support tranches -protects only against prepayment risk by transferring it to the support/companion tranche and thus is riskier with a higher yield -Still has extension risk -no payments until all CMO tranches are retired and thus the most volatile tranche -No suitable for investors needing fixed income since the payments are unpredictable -highest prepayment risk -PAC

Where are limit orders kept? How are orders filled between members/market makers and public orders

-offical book -public orders are placed before members orders

Hypothecation (3) Commingling? Pledged securities must be held in what?

-pledged securities must be held in street name -Broker-dealers are limited to pledging 140% of a customer's debit balance -So if half the account value is 10,000 equity, 10,000 debt, you're limited to pledged 14,000 (10,000 debt x 140%) -The firm cannot commingle customer securities with securities owned by the firm unless written permission

Generic advertising What do you need?

-promotes securities as an investment medium, but does not refer to any specific security/its name -You must have the actual type of security you're offering.

Rule 144 What happens when you sell restricted or control stock as an When you sell rule 144 stocks to a third party what happens?

-regulates the sale of control and restricted securities -control securities are those owned by directors, officers, or persons who own or control at least 10% of the issuer's voting stock --If two people are family members in the same house or one financially supports the other, than you can combine your interests (6+5==11%) and become a controlling person aka an insider, aka an affiliate --Restricted securities : acquired not through an register public offering like a private placement and is considered unregistered -You must file a form 144 except if you sell less than 5,000 shares or 50,000 worth of shares. Then you don't have to --If you sell restricted stock may not be sold until they have been held fully held for six month ---after 6 months 1) if you are an affiliate/insider you can only sell the greater of 1% of total outstanding shares or the average weekly volume of the last 4 weeks 2)if you are not an insider/affiliate than you don't have a volume limitation. --If you sell control stock you have the same volume limitations, but no holding period Selling shares under Rule 144 effectively registers the shares. In other words, buyers of stock being sold subject to Rule 144 are not subject to any restrictions if they choose to resell. THEY ARE ONLY AN AFFILIATE AKA CONTROL PERSON IF THEY ARE FAMILY AND LIVE IN THE SAME HOUSE OR SUPPORT FINANCALLY

Direct Registration System.

-relates to registering a stock -a stock is registered in an investor's name, but the company that issued the stock (or its transfer agent) is the one that holds the security in book-entry form, instead of a broker-dealer like street name

Roll up Why? Maxium compensation to the investment bank?

-reorganization of one or more limited partnerships into securities of a successor corporation -The lure to investors is the possibility of turning an illiquid DPP into a more liquid security. -maxium is 2 %

DMM (Designated Market Maker).

-represents a member firm of the NYSE -must make a ORDERLY. market in the stock they trade

Private placement nicknames

-restrcited stock due to the 6 month holding period -unregistered since its exempt from sec filing -letter stock since investors agree to the terms in an investment letter -legend stock

Exclusions From the Filing Requirement (neither post nor prefiling)

-retail communications that previously have been filed with FINRA - Retail communications (not correspondence or institutional) that are posted on an online interactive electronic forum

Nominal Quote Main purpose Common with what type of bond? Requirement?

-someone's assessment of where a security might trade -Used mainly to give someone an idea of the market value of an inactively traded security, but they are not firm quotes -Common with munis -Must be marked nominal to be printed

Legal Opinion? Found where? Made by who? Qualified vs unqualified Ex-legal

-states that the issue is legally binding on the issuer and conforms to applicable laws. -Written on the bond certificate -Signed by bond counsel -normally smaller municipalities, choose not to obtain a legal opinion which is called ex legal -Still can delivery in good condition as long as it says ex legal

principal-protected funds

-stocks and bonds -The principal is guaranteed, typically by an insurance policy. -lock up period of 5-10 years

LPs can LPs cant

-sue the GP -Exercise the partnership democracy vote under special circumstances, such as 1) permitting the GP to act contrary to the agreement, 2) to contest a judgment against the partnership, 3) admit a new GP/remove GP -participate in management (They are passive) -put their name on partnership name

What must be kept for 3 years**

-terminated employees -errors -trade confirmations -communications with the public (retail, correspondence, institutional) -update customer account info

Agreement Among Underwriters Includes what? give examples For what type of security issue and bid

-the actual doc states the duties of each syndicate member and the underwriting manager -signed by all participants in a syndicate for a -underwriting compensation (takedown and concession) -for a muni issue negotiated underwriting (not competitive)

Adjusting option contracts for stock dividends and splits

-the amount of contracts held does not change, but the strike price and shares per contract do! -The shares per contract changes from 100 per contract to (lets say 20% stock dividend) to 120 shares per contract -The strike price changes = strike price x 100 / # of new shares A customer is long 10 XYZ Jan 60 calls, and XYZ declares a 20% stock dividend. On the ex-date, the customer will have 10 XYZ Jan 50 calls (120 shares per contract).

contributions and withdrawals for coverdell

contributions can be anyone, 2000 limit, before 18 and are after tax withdrawals are tax free but subject to a 10% penalty on EARNINGS if not used by 30 or for a qualified expense. After 30 you can roll them over (for a 529 too) -Can contribute to coverdell and 529 SS. coverdell

COME BACK TO Excess equity and the SMA (important) -But what if the equity falls? How does SMA change -What else goes to the SMA / increases it** What can the SMA be used for and what cant it be used for?

-the amount of equity exceeding the Regulation T requirement (50% of LMV or account value) -The Excess equity gets deposited in the SMA and you have double the SMA as buying power. DO SS SMA -But what if the equity falls? Lets say the excess equity is 10,000 and then the market value falls and now the excess equity is 5,000. Regulation T states that the SMA amount is equal to the greater of the EE or the SMA already in the account. The SMA stays at 10,000. ***THE SMA DOES NOT CHANGE UNLESS USED, DOES NOT CHANGE WHEN MARKET VALUE DECREASES*** -So what goes in the SMA? Excess equity, when you sell a security and withdraw proceeds 50% goes to SMA, when you get dividends, when you deposit cash into a margin account that is not needed to meet a margin call (nonrequired cash deposit), a reduction in debt, increase in market price of stocks. Only changes when there is a monetary change (so a stock dividend wouldn't do anything -You can use double the value of the SMA to purchase stock on margin BUT IT WILL INCREASE THE DEBT BALANCE AND LMV. So if you're SMA is 10,000, you can buy 20,000 worth stock and you debited 20,000. Thus you can use the SMA to meet regulation T initial deposit (50%) by using the SMA to buy stock to meet regulation T (pg 438). If you use the SMA it increases the debt balance. 2) BUT you cant use SMA to meet a maintenance call 4)You can use SMA to transfer money into an custodial account -SMA is also referred to as buying power because you have double the SMA to buy on margin Do SMA screenshot

net interest cost (NIC)

-the bidder with the lowest net interest cost to the issuer of a competitive bid -a premium received will lower net interest cost and a discount will raise net interest cost and remember you want the lowest NIC NIC SCREEN SHOT

open interest

-the number of contracts outstanding. -As the option expires, open interests begins to decline as investors close out or exercise existing position s

Separate account performance is dependant on

-the performance of the sub accounts -The performance of the sub-accounts determines the accumulation units. -the # of accumulation units can change during the accumulation period by buying more and investing more -Once accumulation ends, and the payout begins then the AIR is compared to the separate account performance to determine the payout

Investment constrains Investment objectives Investment Goals

-time horizon, liquidity, unique/preference, tax, legal -preserve capital, income, grow/capital Appreciation/speculation -College, philanthropy, buy a home, legacy

New Housing Authority Bonds (NHAs or PHAs) What is special about them!!! and thus what___ Double barrel? What type of bond Another name for them?

-to develop and improve low-income housing -Muni but backed by US so its the safest mun (AAA) -NOT Double barrel since the additional revenue source is the gov -Revennue Section 8 bonds.

TRACE Whats excluded

-tracks corporate and government agency bond transaction in the OTC market. -Money market -Both sides of the transaction must report.

What needs to be kept for 6 years What happens during the first two years? COME BACK

-trade blotters -ledgers -customer account records after the account has been closed -Whether a six-year or a three-year record, during the first two years, these records must be kept in an easily accessible place. (trade confirmations are 3 years)

Finding the # of accrued days How does you include settlement day

-treasuries you count actual days -Munis, corporates, and GNMA you just count the 30 day per month You from the last coupon date c up until the day before settlement which is 2 days after the trade date (don't confuse trade and settlement date)

Buy stop order of 40 Used for what? DO example - -39.90, 40.05, 40.10, and 39.78.

-triggers when XYZ goes above 40 and then turns into a market order for the NEXT best price which could be above or below 40 -used to protect a short position -It triggers once it hits 40.05 but buys the next price at 40.10

Selling groups in a syndicate issuance selling group vs syndicate member

-underwriters hire selling groups to help sell securities for a commission with no commitment to buy securities. -act as agents (unlike syndicate members who act like principals)

Stock or Bond Power

-use to transfer ownership to another person. -separate from the security certificate -usually for safety reasons

Official statement discloses

-used in new municipal offerings -issuers financial condition -debit limits and outstanding debt

Electronic Municipal Market Access (EMMA) vs Real Time Transaction Reporting System (RTRS) Who is Emma for*****

-used to locate key information about municipal securities like the offical statement, credit rating changes, etc (unlike RTRS which gives transaction data) -for retail investors (not professionals like BD) -collects and disseminates transaction data in municipal securities (not muni funds like 529) for market transparency to the public surveillance purposes and analytics. -does not include Municipal FUND securities 529 plans Do SS new muni issue info

Warrant vs right (2)

-warrant is long term, right is short term -Unlike rights, the purchase price is always higher than the current market price on the date of issue of the warrant.

Reclamation vs rejection There are two types of bond deliveries that are never subject to reclamation:

-when a buying broker-dealer, after accepting securities as good delivery, later discovers that the certificates were not in good deliverable form (e.g., certificates are mutilated). -securities can be sent back to the selling broker-dealer with a Uniform Reclamation Form -Rejection happens at the moment of delivery; reclamation they accept first, then later discover the error and reject - "In whole call" and when the issuer goes into default after the trade date

Annuitize Accumulation units vs annuity units # of annuity units?? What is the accumulation units?* What does the account current value=

-wishing to receive scheduled payments for life (not lump sum) -When a variable annuity contract is annuitized, accumulation units are exchanged for annuity units as you transition from the accumulation phase to the annuity phase (payout) -The # of annuity units is fixed but the value of each can change The accumulation units is basically how many units you own in the separate account and you can purchase more thus the # of accumulation units is varibale. The value of accumulation units is variable and is determined by the performance of the sub accounts # Accumulation units * unit value=accounts current value EX. accumulation units SS

Breakpoint Eligibility

-you get the break even if the purchases are made 1) in various different accounts as long as they are made by the same investor 2) the same fund family even 3) held at separate security firms

Credit and debit spread example An investor buys 1 XYZ Nov 50 call at 8 and sells 1 XYZ Nov 60 call at 3.50. At what stock price will the investor break even?

1) identify this is a debit spread and they are losing money off the premiums, and thus want to exercise the options to make money and thus want the stock to move (credit spreads you want the stock to be still so you get the premiums from the options expiring) 2) since your losing 4.50 off the premiums you need the stock to get higher than the call strike by at least 4.50 to break even

Combination

1)different strike price OR 2)different time (either 1 of the 2 or both) AND 3)same strategy (going long two options or short two options) composed of a long call and long put, or a short call and a short put, each having different strike prices and/OR expiration months on the same underlying security.

straddle Short straddle Long straddle Goal? Taxed**

1)same price and 2)same time, 3)same strategy (going long two options or short two options) -going short two options, you want price stability, thus you're collecting premiums and don't want anything to exercise. -going long 2 options, you want volatility. Since youre not collecting premiums, you want to exercise the options, and thus you want the stocks to deviate far from the strike price and thus move/fluctuate. Only cost is the premium -do 2 straddle question -The options are taxed separate EX. $400 loss on the call, $250 loss on the put

coverdell vs 529

coverall includes primary vs secondary education while 529 is only secondary Contributions deductible at state level Can be opened for a minor or an adult Donor and Beneficiary can be the same person

Sallie mae minium

10,000 -provide long and short term securities to fund student loans

How to find how many stock shares the bond is convertible into

1000 aka par value /conversion price Should be your first calculation when you see these questions

Blind Pool For what types of investments

25% or more of the specific properties (in real estate) or sites (in oil and gas) have not been identified at the time of the offering. 2) Raise money publicly to invest in an unidentified industry or sector. Blank checks give you no indication while blind pools indicate the industry.

How many days do you have to deposit regulation T 50% and for what accounts **

4 business days aka settlement +2 Cash AND MARGIN ACCOUNT**

Whats the maximum sales charge over the life a variable life insurance policy What is the maximum sales charge on the pop a MF can charge maximum to the member if recommending the client vote in favor of the roll-up. For a DPP such as oil and gas or RE, how much of the investment must go to the actual oil or RE (as opposed to fees and fund expenses) Of that^, what is the maximum underwriting compensation that may be charged for an LP/DPP

9% 8.5 cant exceed 2% 85%, thus only 15% can not go to the program 10% (so is the max that can go to overall fund expenses AND compensation, while the 10% is just the compensation)

What two items are NOT NOT NOT on an order ticket **What is on an order ticket

current market price of the security and the client's name or client address. -solicited or unsolicited.

Currency Transaction Report (CTR)*** What form

A report that must be filed for each transaction in currency (EX. cash deposit**** NOT checks or wires) of more than $10,000 by or through a bank in ONE DAY and you must REPORT it within 15 DAYS. Designing deposits to fall under the $10,000 radar is a prohibited activity known as structuring. EX. A customer makes 25 $500 cash deposits to pay for a $12,500 transaction. This shouldbe recognized as an attempt to structure payments to fall under the $10,000 limit toavoid the filing of a CTR. Form 122 SS. Cash

Dividend payout ratio EPS

ANNUEL dividend paid out / Net income - preferred dividend Net income - preferred dived paid out / shares outstanding

Determine stock dividend # of shares owned = 100 Price per shares = 60 20% stock dividend?

Account value = 100*60=6000 # of shares owned = 100*1.2=120 Price per shares = 6000/120=50

Determining stock splits - the check is the account value must stay the same # of shares owned = 400 Price per shares = 50 3:2 Stock split 1:6

Account value = 6000 # of shares owned = 100 Price per shares = 60 3*100= 300/2 = # of shares owned 150 2/3 * 60 = 40 150*40=60000 You get 3 shares for every 2 shares you own You get 1 shares for every 6 you own so its a reversal

DPP Advantages and Disadvantages

Advantages: 1) investment managed by a GP, 2)flow through of income and expenses, 3) limited liability, 4) deferment of taxes to avoid short tern capital gains Disadvantages: 1) Lack of liquidity but there is a limited secondary market, 2) leverage risk, 3) legislative risk (cant get out of an investment cause its illiquid if a law changes)

Agency vs principal

Agency= commission and being a broker Principal = markup and being a dealer

Questions about the profit of an option situation when you buy an option and then short an options EX. An investor opens the following options position: Long 1 KAP Jul 50 call @ 4½ and short 1 KAP Jul 45 call @8¼. What is the investor's maximum gain, maximum loss, and breakeven point?

Also look for if its a credit spread or a debit spread - If its credit then they want to profit off premium and that is the max gain and if its a debit spread then they are trying to make money off the option being exercised Look to see if its a bear or bull spread. If its bear then they want to stock to decline The credit of $375 is the most the investor can make since its the differ ence of the two premiums

Simple arbitration Sidenote: If you're filing for arbitration (not simple) and X years have passed then its no longer eligible for submission

Any dispute 50,000 or less 6

Guaranteed Bonds (2)

Backed by a third party like the parent company Still unsecured and backed by the credit worthiness of the parent company

Keep for 6 years

Blotters Ledgers Complaints Account records

Roth vs ira contribution

Both have no age limit to the contribution (distribution there is an RMD for IRA at 72) but Roth IRA as an income limit SS. 72

Due Bill

Broker-dealers use a due bill when the incorrect party receives a dividend, interest, right from the issuer.

Price or vertical option spread What strategy

Buy and selling an option of the same CLASS with the same expiration date but different strike price, and a long + short position

Bull spread

Buying an option with a low strike price, and selling an option with a higher strike price

Class A (x-end load) shares vs Class B (x-end load) shares Whats special about class A

Class A - front load/sales charge - You pay 5% of 1000 when you invest so you only invested 950. Best for large (to get break points) and long investments (spread the one time up front cost over the years) -Most common and lowest expense Class B - best for small and long investments (the fee declines over the years) -no load on the way in, but they will have a back-end load if redeemed before the CDSC period ends The load is called CDSC (contingent something -higher 12b

Class C (level-load) shares vs No-load shares

Class C (level-load) shares Annual charges part of the expense ratio thus you should trade them short term so you don't rack up annual charges - No-load shares sell the shares at NAV and have a 12b-1 fee of 0.25% or less, and have no load sales charges

A direct participation program (DPP), organized as a limited partnership, must avoid at least two characteristics of a corporation.

Continuity of life—there is a predetermined time at which the partnership interest must be dissolved. freely transferable interests—interests cannot be freely transferred as GP must approve

Coverdell Education Contribution? Withdrawals? Tax? Vs 529 Plan contributions? Transfers? Must provide what?

CoverDell -annual contribution limit is $2,000 UNTIL 18TH bday, anyone can contribute, contributions are after tax dollars so not tax deductible -INCOME LIMIT -Withdrawn earnings are taxed to the recipient (beneficiary) and are subject to a 10% tax penalty when they are not used to pay qualified education expenses and are over the age of 30 529 -Contribution can be 250,000-500,000, anyone can contribute, contributions are after tax dollars so not tax deductible -No income limit -the assets can be transferred to a family member if not used by the original beneficiary. -Must provide an official statement Similar -Tax free withdrawals if used for qualified expenses

How to find the minimum maintenance market value **

DR/.75 -Debt value not long market value! A customer has a margin account that shows a market value of $190,000 and a debit balance of $90,000. In addition, the account has special memorandum account of $5,000. The long market value at maintenance is

diagonal spread

Differ both in time and strike --different strategy, same call put put

Bond yields

Discount & least to greatest Nominal CY YTM YTC Write it out on the exam (you messed up when do it in your head) Do Example NOM, CY, YTM, YTC

Allocating exercise assignments

Either have to be on a random basis or first in first out Cant be by size

t+1 and t+0 aka same day

Equity option settles Treasuries Index options settles and exercise -money markets settle same day Everything else is t+2 EX. T+0 SS

Eurodollars vs Eurobonds

Eurodollars EX. an Indian bank held dollar- denominated bonds issued by a Korean company Eurobonds - a Swiss company issued bonds denominated in British pounds SIMILAR: Both must be issued outside the US Difference: Eurodollars pay in USD

The NYSE and nasdaq do not accept

Fill to kill FOK All or nothing AON GTC stop order

Financial profile vs non financial profile

Financial profile is: -Income statement -Balance sheet: -anything with a number non financial profile: -non numbers like risk tolerance and tax status, retirement age

Order of how to appeal a Department of Enforcement, decision if a RR is suspended**

First to the National Adjudicatory Council (NAC),then to the SEC, then to the federal courts.

Full Power of Attorney vs limited

Full - an individual who is not the owner of an account can 1) deposit and withdraw cash or securities 2) make investment decisions for the account owner. Limited - You can enter orders but not withdraw funds

backed by US gov enterprise

GNMA and FCA are backed by US Rest are not

Are property taxes for GOs or revenues What kind of debt is associated with this

GOs that are issued by counties and cities (NOT States since ad valorem/property taxes are not states) Coterminous debt

Bond buyer is what for type of bonds

Go to source for new muni issue information

Investment Grade bonds

Highest is: AAA and Aaa, then AA and Aa SP: BBB and up Moodys: Baa and up Everything lower is high yield or junk

When is giving a gift allowed to a client (DONT CONUFSE WITH GIFTS TO EMPLOYEES, THIS IS GIFTS TO CLIENTS)

If you (the person/firm giving the gift) are there when the party gets the gift The gift is occasional (a sports game) (season tickets is not an occasional gift) $100 per INDIVIDUAL per year (not a 100 per year) You need your firms approval Cant be conditional on sales or the promise of sales

What is a variable annuity bonus? pro and con?

If you invest 60,000 with a 5% bonus you get a head start in the investment, starting at 63,000 but your surrender charge lasts longer.

Prefiling When do you need to prefile and for what products?*** What do you need to do before filing? Includes what type of clients?

If you're reccomending investment products you must: -Filing 10 days before first use (vs postfiling which is WITHIN 10 days of first use) -1) FOR RETAIL COMMUNICATION (not institutional or correspondance 2) new member firms in their first year of operation for any retail communication 3)options but need to be a registered options principal (ROP) 4) FUTURES -approved by a designated principal before filing with FINRA (only retail needs this, not institutional) but for options it needs to be a a registered options principal (ROP) Prospect and Client

FINRA Rule 2310 Recommending a DPP Talk about the document**

In recommending a DPP to a customer, a member firm must have WRITTEN VERIFICATION THAT THE CLIENT 1)is in a position to take full advantage of any tax benefits generated by the DPP; 2) sufficient net worth WHICH IS IN THE SUBSCRIPTION AGREEMENT Then must maintain documents in its files describing the basis on which the determination of suitability was made.

What increases and decreases the SMA What happens when you get dividends

Increase -Excess equity -when you sell a security and withdraw proceeds 50% goes to SMA -when you get dividends (not stock dividend) --when you deposit cash into a margin account that is not needed to meet a margin call (nonrequired cash deposit) -a reduction in debt -increase in market price of stocks. -MONETARY THINGS ONLY Decrease -Shorting securities -buy more securities on margin ____________ Diviends are able for withdraw at anytime within the first 30 days otherwise they go to SMA and reduce debt and increase equity

Gift taxes are due____ while estate taxes are due____

Individuals may give gifts up to $15,000 per year to any number of individuals without incurring gift tax. 9 months after death

What is set by the fed board

Initial margin requirements on nonexempt securities are set by are marginal stocks, bonds and warrants

An investors basis for a DPP

Investment + share of recourse debt (+ non recourse debt for a real estate DPP) - Cash or distribution -You can only deduct losses amounting to your basis (100,000), nothing more than that but can carry the remaining amount over (20,000) Do. investment basis for a DPP SS

How are withdrawals treated out of annuites

LIFO aka earnings are assumed to be withdrawn first

Recourse loans and non-recourse loans for DPPs

LPs are liable for a proportionate share of recourse loans but no liability for non recourse loans -Nonrecourse loans add to the investors basis for real estate DPPs

What is the only case where a long option can realize long-term treatment.

Leaps because normal options are 9 months aka short tern. Leap BUYERS will report long term if held for more than 12 months , however albeit investors may have held the contract for more than 12 months, LEAPS WRITERS must report short-term capital gains at expiration.

Different options when you annuitize a contract (and get paid out) ALSO CALLED SETTLEMENT OPTIONS for a VA

Life annuity (also known as straight life or life only) - you get paid for life and nothing after you die instead all your money goes to the insurer, largest check to the person Life annuity with period certain - The annuitant is guaranteed monthly income for life with this option, but if death occurs within the period certain, a named beneficiary receives payments for the remainder of the period, Smaller check than^ Joint life with last survivor annuity - guarantees payments over two lives. Ex. If the husband dies first, the wife gets income until she dies Unit refund option - guarantees distribution of all the money, and if the person dies, the beneficiary gets the lump sum left over. Smallest check -When you accept one it is final and contractual obligation

Who approves an options account

Limited Principal or ROP (Registered Options Principal)

Capital Structure includes

Long term debt Capital Stock (common and preferred) Retained earnings (earned surplus) Capital in excess of par (capital surplus)

Customer complaints MSRB vs FINRA when would you not need to keep a complaint?

MSRB - 6 years FINRA - 4 years If the complaint is not written/electronic, and rather oral

Who does short term debt and what type of short term debt and what are the ratings** Best to worst

MUNI Notes (not regular notes) MIG AKA Moodys : MIG 1 - MIG 4, SG =(Speculative) S&P: SP-1 - SP-3 Fitch: F-1 - F -3 MIG Screenshot

Credit spreads max gain and loss Debit spreads max gain and loss

Max Gain = net credit received Max loss = diff in strike - net premium Opposite Max loss = net debit paid Max gain = diff in strike - net premium

Short straddle max gain and loss Long straddle max gain and loss

Max gain = total premiums Max loss = unlimited (since there is always going to be a short call) max loss = total premium Max gain = unlimited

Long 1 ABC Aug 50 call @ 5½; short 1 ABC Aug 55 call @ 3½. What is the investor's maximum gain, maximum loss, and breakeven point?

Maximum gain is $300; maximum loss is $200; breakeven is $52.

SRO and dea

Minimum maintenance requirements for nonexempt securities, as well as margin and maintenance requirements for exempt securities, are set by a firm's self-regulatory organization. -Treasures, gov agency, and munis are exempt from the 50% rule and SRO or DEA

In an UTMA account, what who is it taxed to

Minor

immediate or cancel

Must be filled immediately but NOT in its entirety -partial is fine

POP = Sales charge = When you buy a MF, what price do you use******** When you sell/redeem a MF, what price do you use??***

NAV/[1 - Sales charge percent] POP ($10.50) - NAV ($10) = sales charge dollar amount ($0.50) -Salescharge is a percent of POP, not nav -Pop > Nav -pop as the buy price AKA the offer= NAVs market close + sales charge -You use the NAV as a selling price/redeem price EX. SS Nav price AND POP CALC

Do you want an credit spread to widen or narrow

Narrow because if you want the options to expire, and option premiums decline as expiration approaches making the spread thinner as you become closer to your goal aka expiration debit = widen = exercise (When you begin to widen, you need to exercise.)

What is needed and not needed when open a new account form Delivery

Needed - Principal signature, NOT needed - customer signature delivery of form in 30 days and every 3 months thereafter

Non qualified Funded how?

Non-qualified: 1) Discriminatory so may favour certain employees (executives) 2) funded with after tax EX. deferred compensation plan,Payroll deduction plans allow employees to authorize their employer to deduct a specified amount for retirement savings from their paychecks

non qualified and what is INCLUDED IN NONQUALIFIED qualified plans Always max out which one first

Nonqualified plans -Discrimatory -No RMD and cant take out until 59.5 -Only earnings are are taxed on withdrawals at ordinary income -contributions are after tax and not tax deductible -No IRS approval -EX. deferred compensation, payroll deduction, discriminatory -VAs ARE NON QUALFIFIED Qualified plans -RMD at 72 -all withdrawn is taxed -contributions are pretax (401k) and thus tax deductible e -REQUIRE IRS APPROVAL -Qualified plans = 401k, TSA/403B, profit sharing, pension Max at qualified before adding to unqualified and annuities

Primary muni bond info

Notice of sales and Bond buyer

Another word for OTC Whats traded OTC Another word for exchange is

OTC -Negotiated -Treasuries are OTC Exchange -Auction Market for highest bid and lowest offer

Where do Reits trade Reit taxation

OTC and exchanges -must get 75% of its income and distribute 90% of its taxable income to NOT get taxed as a corp -diviends from REITS are not qualified but taxed as ordinary income

Open vs UIT

Open is continually offering new shares while UITs offer a one time offering

Option series

Options of the same class (the same underlying security and same call or put) that also have the same EXERCISE PRICE and MATURITY MONTH.

Allocation Priorities for muni issues

PGDM Presale order - investors buy before the syndicate wins the bid, and thus before the price is established split between all syndicate members proportionality Group net order - placed after the bid is awarded and the order is paid to all syndicate members proportionality Designated order- during order period, order is paid to only certain syndicate members Member order - the syndicate member enters an order for itself, must notify the syndicate manager The easiest way to remember the priority of the various types of orders is that the highest priority is given to those orders that benefit the most members (split between all syndicate members proportionality for presale and. group The lowest priority is given to orders that benefit a single member.

What do you need for an LP to exist**

Partnership Agreement: Describes the roles, rights, and liabilities of the GPs and LPs Subscription agreement: 1) GPs signs this to accept an LP. 2) Includes LP financial info (net worth, income) and a statement appointing the GP as the manager The certificate of limited partnership: gives public information about the partnership and is filed in the home state, 2 people must sign it

Time value= When is an option trading at parity

Premium - Intrinsic Value -When premium=intrinsic value On the last trading day, there is no more time so the time value = 0, thus the premium will = intrinsic value and its at parity 3 253

529 prepaid vs college savings plan

Prepaid- allow donors to lock in a future tuition plan at todays rate and thus inflation protected College savings - invested into target date funds and have investment risk and can lose money

The execution report

RR uses the execution report to see if it matches the order ticket to make sure its accurate

A.M. Best

Rates the insurance comapanies -A or A+ rating from them signifies substantial ability to meet their claim obligations.

ERISA Rules to qualify?

Regulates the opening of corporate pension or retirement plan accounts Applies to: -private sector (corp, not fed or state works) -qualified plans (profit sharing, Keogh, corporate pensions) Provisions -must be in writing -employees need annual statements -must name a beneficiary -21 years or older and have performed one year of full-time service, which ERISA defines as 1,000 hours or more

Good Delivery Clearing Rule (100!!!!!!-Share Uniform Units) Round lots Odd Lots rule What if the order is an odd lot?

Round lot = Anything made made up of 100s (470, 4500, 200) Odd lot= 67 -If the odd lots can be made into piles of 100s (50 + 50) it is a good delivery, but if it cant be then its not. EX. 300 shares to sell is good for 60,40, 50,50,50,50, but NOT for 75, 75, 75, 75 because 75+75 does not get into piles of 100 while 60+40 or 50+50 do get 100. Do Page 466 -If the order is an ODD LOT, any number of certificates adding up to that odd-lot is acceptable. For example, a trade for 67 shares can be a 50 plus a 17, or a 25, plus a 30, plus a 12. Do odd lot question - if the lot is 470 you need to get the lots into piles of 100s and then a pile into 70. Rule: If the order is a round 100 (300 for example) the odd lots need to be in able to get added into piles of 100 NOT total of 300 like 75*4=300

short stock + long call

SS

Wash sale exception? What is the new cost basis if you do buy the same stock again after recently selling it for a loss**

Selling a security at a loss for tax purposes and, within 30 days before or after, purchasing the same or a substantially identical security. The IRS disallows the claimed loss. -61 day period in total (30 before+trade date+ 30 after) -You can buy similar option series. XYZ Oct 40 call and XYZ Nov 40 call. -you add the amount you lost to your new purchase price (I bought for 38, sold for 35, and then refought for 44. My new cost basis is 47) EX. WASH SS

Spread = Total Takedown (3)** Rank whats biggest to largest within the spread one bond points = reallowance=**

Spread = total take down +management fee Total Takedown= the additional takedown + concession The total takedown is what a syndicate member buys a bond from the syndicate manager and then will sell those bonds to the public at the offering price or to the selling group at concession The total takedown is what a syndicate member makes when they sell to the public Additional takedown is when the selling group sells an issue and the syndicate gets a fee from that. -concession, additional takedown, management fee -10 dollars =selling an issue to a random firm for a small discount, essentially giving up half of the concession

Local government investment pools (LGIPs) SEC?

States set up an short term investment pool for other government entities such as schools, counties to invest in -exempt from SEC since its gov and thus no prospectus s

The bond buyer publishes what two things? For what bonds? Does not include what? Thomson Muni Market Monitor

The Bond Buyer publishes -the 30-day visible supply (the total dollar volume of municipal offerings—not including short-term notes—ESTIMATED to reach the market in the next 30 days) ---if the visible supply is high, rates are likely going up to attract more buyers -Placement or acceptance ratio which is the ratio of new issues sold to new issues offered THAT WEEK (not 30 days) (measures success of underwriters to move issues) -Contrarily, the Thomson shows data for munis showing in the secondary market while the bond buyer shows new issues

position trading

The dealer is buying for its inventory (position trading) aka market making aka principal

What does the legal opinion attest to

The legal opinion attests to 3 things: legal authority of the issuer, IRS authority of Federal tax- exempt interest and that the security is exempt from the Securities Act of 1933.

Exploratory aka Wildcatting Developmental Income Talk about taxes***

The most speculative type of program, which is drilling where none has occurred before (i.e., in an unproven location). -High IDC for immediate tax -Drilling near existing wells to find new reserves -Medium IDC, immediate taz -Provide immediate income from the sale of existing oil -income sheltering from depletion allowance ^From highest cost, tax benefit (higher the cost, the higher the tax write off), risk, and reward

Fill to Kill

The order needs to be filled in its entirety and IMMEDIATELY or the whole order is killed

Issuing a security 1933? What securities does this act not have to do with? When is the offering period? How long is the cooling off period and what happens if the registration statement needs fixing by SEC? Who doe they send the fixing to? Who are the tombstones placed by?****

The securities act of 1993 make issuers of securities REGISTER and provide a prospectus . Thus securities exempt from registration like munis and treasuries have nothing to do with this act. 1. Prior to registration filing date no prospectus or solicitation can occur 2. Once registered WITH SEC THEN the cooling off period begins where indications of interest can be solicited with a red herring/prelimary prospectus and a tombstone ad may be published but no sales literature can be distributed 3. After the effective date (the date the SEC releases the securities to be sold) the offering period begins and sales can be solicited but must use a final prospectus So it goes No prospectus, prelimary prospectus/red herring, then final prospectus_____________ The 20-day cooling-off period is halted and resumes where it had left off once the corrected registration statement is received. The issuer receives the deficiency letter. -the tombstones are placed by the syndicate manager and are not mandatory Do SS Registration period

Cost basis of an option if youre Long a call Cost basis of an option if SELL a put _____ Married put (when you buy the stock and put same day) stock + put but not on the same day

The strike price + cost of the option (contrary to you think you'd be subtracting them) A customer purchases 1 XYX April 50 call for 3 when the stock is trading at $46/sh. When the stock reaches $60, she exercises the option to purchase the shares. Cost basis is 5000+ 300= 5300 -The strike price - cost of the option A customer sells 1 ABC 50 put for 2. Whats the cost? A customer buys 100 shares of ABC at 56.50 and writes 1 ABC Aug 60 call at 2. If the call is exercised, the consequences are a cost basis of $56.50 per share. sales proceeds of $62 per share. _______________________________________________________________- -No matter what, even if the put expires worthless, you add the premium to what you bought the stock at. Holding period not impacted An investor purchased 100 shares of ABC common stock at $60 per share on March 2, 2019. At the same time, an ABC Oct 55 put was purchased at $2. On June 2, 2020, the investor sold the stock for $85 per share. As a result, the tax consequences are $2,300 long-term capital gain. -If stock's holding period is 12 months or less before the purchase of a put, the gain will be classified as short-term. The stocks age will erase and start over again once the option expires EX. SS stock + put but not on the same day

What does Government National Mortgage Association GNMA actually do

They just approve banks to make loans and package them as MBS

Secondary market trades does not include Municipal FUND securities 529 plans

Thomson muni issue and RTRS RTRS does not include Municipal FUND securities 529 plans

Special Tax Bonds aka Other than what tax?

designated tax bonds. bonds secured by one or more designated taxes other than ad valorem (property) taxes. the designated tax does not have to be directly related to the project purpose.

Treasury yield vs U.S. government agency vs corp

US gov agency have slightly higher yield than treasuries but lower yields (and thus safer) than corp

Waiver of Premium

When an insured person becomes disabled or unable to work, that person may does not have to continue paying premiums on the contract (NOT get the premiums back)

Time spread or calendar spread

different expiration dates but the same strike prices. -different strategy, same call put put

When is call risk highest Interest rate risk Whats the biggest risk to long duration bonds

When the bond is purchased at a premium because -Risk rates will rise, they push price down -Inflation risk

X

X

Basis = EX. 6% municipal, basis 6.5%, due 2028

YTM 6% coupon, and a 6.5% YTM

Collateral Trust Bonds

You use financial securities like stocks as collateral for a loan

What type of bonds are most callable

You would call a bond (Stop paying it) the higher the coupon (since youre going to issue a new one way cheaper) and the lowest callable price (cost less to do the call) SS Callable

What is NOT on a trade confirmation for a "WHEN ISSUED/ as-, if-issued" new muni issue (MSRB)

does not include a total dollar amount or settlement date because, until the settlement date is known, the accrued interest cannot be calculated to determine the total dollar amount. Once the bonds are issued, the investor receives a new confirmation stating the purchase price and settlement date.

Option confirmation includes

all essentials + commission

Trust Indenture Act Trust Indenture is where?

applies to 1)corp bonds 2) 50m> 3) 9 months maturity> 4) interstate This act was passed to protect bondholders and requires that issuers of these bonds appoint a trustee to ensure that promises (covenants) -The trust indenture is the contract

Trust indenture act where is the trust indenture What is exempt

applies to 1)corp bonds 2) 50m> 3) 9 months maturity> 4) interstate This act was passed to protect bondholders and requires that issuers of these bonds appoint a trustee to ensure that promises (covenants) -The trust indenture is the contract -treasures

15 minute reporting time after ______ for what two acronmsy s DONT GET

-After excution (not order entry) -Real-Time Transaction Reporting System (RTRS) -TRACE

Sinking Fund For what kind of bonds Where is this found**

-An escrow like account in which the issuer of a Term bond periodically retires some part of the bond principal prior to maturity so that enough capital will be accumulated by the maturity date to pay off the bond. and thus helps make the bond more safe and appealing -Part of the trust indenture

?What to do when a client dies (4) Power of attorney? joint tenants with rights of survivorship (JTWROS)

-Cancel all open orders -Freeze accounts - mark the account as deceased -Await instructions from the executor of the estate -Power of attorney is revoked (not frozen) -Assets are not transferred until a death certificate is given

Long term capital gain distributions for mutual funds* Short term capital gain distributions for mutual funds

-Cant be distributed more than once a year while dividends can be distributed when ever AND INCUR A TAX -Taxed as a dividend distribution at ordinary income

Rule G-37 - underwriting munis

-Cant underwrite a muni for two years if you make a political donation. -For negotiated bids, not competitive -Exception, an MFP (not the firm) can give up to 250 per election

TSA 403B (tax sheltered annuities)

-For employees of schools, NOT STUDENTS -Religious organisations -charities -sports

Tenants in common vs joint tenants with right of survivorship

-If one dies, their assets are passed to their estate.The account must be frozen until this is carried out. -may make unequal investments in the account and may own a disproportionate interest in the property in the account. Joint tenants with right of survivorship -Each party has an equal interest

You receive an inherited gift, what is the cost basis

-If you inherited it, the cost basis determined by the value when that person died

Gift taxes How is the tax decided

-Individuals may give gifts up to $15,000 per year to any number of individuals without incurring gift tax. -If its gifted to you, you assume the donors purchase date and price to determine capital gains -Tax is paid by the donor based on the value of the gift that day -Interspousal gifts to citizens of the United States, regardless of amount, are not subject to gift taxes.

Showing mutual fund performance

-Must show for 1, 5, 10 years

Penny Stock (2) Nicknames ?

-Non nasdaq aka bulletin board or OTC Pink -under 5 and not listed -If a stock is listed on an exchange or is on Nasdaq, it is not a penny stock, regardless of price.

Policy Loans (borrowing against the cash value in the annuity contract)*******************

-The insurance has to loan you at least 75% of the cash value but OVER the contracts 3 years old

Commercial paper aka SEC? How is it issued

-Unsecured promissory notes -270 day or less debt (short term debt) and thus exempted from SEC under 1993 act -Issued at a discount of face value and obv doesn't pay interest

Customer complaints requirement Reported when?

-a complaint is only a complaint if it is in writing (not phone, but email, text, IM all work) -Must be immediately reported to seniors

Form D How many days

-an issuer who is issuing private placement stock aka restricted aka unregistered must file a form D no later than 15 days after the first sale

Confirmation of a bond trade sold on a yield basis (mainly for callable bonds) must show 9s of 35 with a basis quote of 7.0%

f-the lower of the yield to maturity (YTM) or the yield to call. EXCEPT when the bond is at par b/c the YTM=YTC -(This is because when you call a bond, you call it at a premium which results in a lower yield. So you must show the bond at the lower of the YTC or YTM) -YTC is lower for premiums and YTM is lower for discount. So if the options are "20 year maturity" or "10 year call" and its trading at a premium (9% coupon<7 YTM) then you pick the 10 year call -coupon = 9, 2035, 7% YTM

How often must BDs send statements

-quarterly (penny stocks is monthly even if there is no activity)

Real estate DPP programs

-raw land: appreciation, no income, no tax benefits, most speculative -new construction: potential appreciation, moderate risk -existing properties: immediate income, tax deductions or mortgage interest and deprecation -Government-Assisted Housing Programs: low income and appreciation, tax credits, low risk

What are debit spreads used for two results

-reduce the cost of an options -If you buy an option for 5 and then you sell it for 3 (buy high sell low = debit) then youre only paying 2 bucks for the premium but your gains are capped.

Death benefit fee During what period** Whats avoided

-sold as a rider to the policy -if the investor dies during the accumulation period, the beneficiary will receive the greater of the current value of the account or the amount invested. -probate avoided

Levels of options approval

1 - covered 2 - long call, puts, straddles, combo 3-spread 4-uncovered, ratio (type of uncovered), shorts

Dollar bonds quoted as 85½= Also called What type of bond and how are these bonds usually quoted?

85.5% of 1000 so 855 Term bonds Munis and munis are quoted on a yield basis

What does a 4% bond trading at 98 5/8 mean

98= 980 5/8=.625=6.25 986.25

Barbell strategy

buying bonds with very short and very high maturities

What to assess when looking at a GO Debit limits**

A) quantitative analysis -Municipals tax (hotel taxes, utility taxes, income tax, property tax) -Wealth of the community (Property values, local bank deposits, population growth, retail sales per capita B) qualitative analysis (trends, attitudes such as voter attitude or attitude towards debt, the plans and projects) -debit limits - statuary debt limit is 5% of the market value of the property

debentures are used to

financing capital expenditures and working capital

Head and shoulders vs head and shoulders bottom*** What kind of trend**** What about for an inverted one?

head and shoulders is a bearish TREND (not market!) while bottom is bullish Reversal trend of an uptrend? reversal of a downtrend

How do index options settle (2) How about when the index options is exercised (2)

in cash the next day (for equity options it settles in delivery of the underlying security)(foreign currency also is in cash) -equity options also settle the next day, however when they are exercised it is T+2. When index options are exercised it is t+1 -when you exercise an index option, you get paid the amount that index closes at for that day (not the amount the index is at when you execute the order) pg274

Negative Response Letter

informs the recipient of an impending action, and requires the recipient to respond or act within a specified time frame if the recipient objects to the action. If the recipient does not respond, he is deemed to have consented to the action. -will not be activated until at least 30 days after the letter was mailed -If they opt out, the client cant be charged a fee to transfer their account to a different firm in the event of an M&A

What time of time horizon is suitable for a balanced fund

long term MFs are long term except class C

Breakeven on a call spread Breakeven on a put spread

lower strike + net premium higher strike - net premium If a customer buys 1 OEX Feb 350 call at 5, then sells 1 OEX Feb 335 call at 16 when the underlying index is at 344, the breakeven point is 346

Quiet Period

may not 1) publish research 2) may not make an analyst make a public appearance regarding the subject company for 40 days following an initial public offering (IPO), or for 10 days following an additional issue offering.

Duration Coupon rate relationship with Duration Duration relationship with maturity

measure the sensitivity of a debt security when interest rates change in the marketplace so higher duration higher interest rate risk -the higher the coupon rate, the shorter the duration, and the lower the coupon, the longer the duration - The longer a bond's maturity, the longer the bond's duration. -For coupon bonds, duration is always less than the bond's maturity. Duration for a zero coupon bond is always equal to its maturity.

VIX -realized (or actual) volatility

measures the level of EXPECTED volatility of the S&P 500 Index over the NEXT (forward indicator) 30 days that is implied in the bid/ask quotations of SPX options -realized (or actual) volatility, looks back

When do you receive the options disclosure document

must be given to the customer no later than at the time the account is approved for options trading.

Cash flow from operations =

net income + depreciation Net income = profit - all expenses (tax, depreciation, cogs)

1) Covered call writing is 2)three conclusions Best case scenario

neutral to slightly bullish 1) You only cover/hedge to the extent the premium recieved so its not much of a hedge So if youre long at 50 and and you sold a call for 50 for 4 then you're only hedged from 46-50. Once it falls below 46 you start losing money again 2) limits upside potential since if the stock starts going up a lot you will be forced to sell it for 50. 3) Your best case scenario is if the stock stays between 51-53 since you'll be making more money off the premium then if you were to sell the stock Long stock normally. Thus you want a stable market

When does cash settle on a stock

occurs same day as the trade date

Rule 147: Reselling

offerings that take place entirely in one state are exempt from registration when -all purchasers are residents AND 1 of the below are met -80% of assets, proceeds -majority of employees are instate ________ -Purchasers of intrastate issue may not resell the stock to any resident of another state for six months

If your net less exceeds your capital gains, you report no capitals gains. And any additional loss can be used to

offset 3000 in earned income and then the rest of the capital losses can be pushed forward forever

TRF (Trade Reporting Facilities). Oats

only FINRA system that tracks transactions on the NYSE and Nasdaq, including OTC (over-the-counter) transactions. -OATS only tracks Nasdaq transactions

What products need to be in a margin account thus what cant

options, shorting, and short covering SS. CASH ACCOUNT

GTC

order remains until it is executed by the broker or canceled by the investor -However, they are all canceled the last day in April and oct (every 6 months) unless the customer (not broker) requests to keep it

Every transaction made by a registered representative for a customer's account

principal must review and approve every order, either by signature or initials.

Securities Exchange Act of 1934 Remember whats not a securities Prohibits what?

regulates ALL SECURITIES (not commodities) activity in the secondary market The Securities Exchange Act of 1934 prohibits directors, officers, and principal stockholders (insiders) from selling short stock in their own companies.

EMMA contains info for

retail not BD or institutions

Achieving a Better Life Experience (ABLE) Accounts

tax-advantaged savings accounts for individuals with disabilities and their families. -injury before 26

Margin account needs

the credit agreement (mandatory) - discuss the interest rates on margin the hypothecation agreement (mandatory), and a loan consent (optional)

credit spread How do you make money?

the long option has a lower premium(NOT STRIKE) than the short option aka you're buying lower and selling higher thus getting credited money -If its a credit spread, then you're making money off the premiums and don't need the to make money off the exercise. If its a debit spread, you're losing money off the premiums and thus need it to exercise. For a call It is more valuable to buy a lower strike price, so even if the premium is not there, if you're buying an option with a lower strike price, you know it has the higher premium and thus it would be a debt spread For a put, the higher the strike price, the more valuable and the higher the premium. ALSO, the longer the maturity the higher the premium EX. credit spread

Bid = (2) Define all

the price the syndicate pays to buy the bonds from the issuer. Offering price aka cost to investor - spread aka what the syndicate managers compensation Cost to investor = $1,000 - Spread = $10 Amount = bid for the issue = $990

DK (Don't know)

used in inter dealer trades when one party does not recognise or disagrees with the terms of the trade submitted by the other party.

The dated date

when newly issued bonds begin to accrue interest.

If a customer does not pay for equity securities purchased within two business days of the regular way settlement date (YOU BASICALLY HAVE 4 EXTRA DAYS), who do you call for an extension? and what happens if you don't pay? Freeriding What do you have to do if you want to purchase when the account is frozen

you can apply for an extension with your designated examining authority (DEA) which can be FINRA, an exchange, or the Fed bank. -if nothing is paid by the 3rd day after settlement the account is frozen for 90 days. -when you buy securities and sell them without paying -deposit the full purchase price UNLESS ITS UNDER A 1000!!

What bonds don't have accrued interest Side note; what does trading flat mean and when will an interest paying bond trade flat

zero coupon (don't confuse accrued with accredited and amortized) or when they are in default the buyer does not owe accrued interest to the seller (prob in default) and two times if it trades on the coupon a year on the coupon date

broker's broker do what two things**** They act as what Deal with what type of clients?*** Whats the unique feature about brokers broker?

- Don't keep an inventory to buy and sell like a normal broker but rather: -assist in other firms to find buyers and sellers AND helps sells the bonds a syndicate has left thus acting like agents - Why? Munis don't sell on exchanges and the market is thin -Only deal with other muni firms and institutions. Never public customers -Its all anonymous

Negotiable CD aka Negotiable? Insured? What is unique about this money market?

--Unsecured Jumbo CD, min is 100,000 -Negotiate? because it can be traded in the open market (thus no prepayment penalty like a CD) -Loans to a bank, thus FDIC insured since its a bank deposit BUT AGAIN NOT SECURED -only money market instrument issued at face value (not a discount) and that pays periodic interest, usually semiannually.

What actually are Original issue discount bonds

-A 3% bond with 20 years to maturity is being issued by a syndicate with a reoffering yield of 4%. -Original issue=being offered by a syndicate aka a new issue (not on the secondary market) -Since the yield is higher than the coupon it is at a discount

Capital losses

-Capital losses that exceed capital gains are deductible against earned income or capital gains -The annual maximum is $3,000 per year and if there is more than 3000, you can push it forward to the next year

Double Barrel is Backed by who?

-Considered GO (not revenue) -Bonds backed by a revenue source (earnings) AND the taxing power of the state or muni -NOT bACKED BY GOV, BACKED BY MUNI OR STATE

FDIC and EX.

-Federal agency that insures deposits in banks up 250,000 PER DEPOSITOR -CDs

No load Also whats 12-b1

-Fund does not charge a sales load (front end charge) BUT -CAN charge a redemption fee -Cant charge more than 12b-1 .25% of the funds annual net assets -must be disclosed in prospectus -cover the costs of marketing and distributing -used to compensate registered representatives for servicing an account. - deducted quarterly as a percentage of the fund's average total NAV.

Who are the Muni Bond Insurers and why insure

-Has Guarantee in it (Financial Guaranty Insurance, etc) -Many small issues of municipal bonds are not rated because of the cost to rate a bond can be expensive. Instead, many issuers will insure the bond for principal and/or interest. --Insurer will pay the interest and principal on the normal schedule thus improving the bonds marketability

Variable Annuity (not fixed) What do you need?*** Has what usually attached Best for what clients? Fixed annuity needs what Sales charges?

-Investor bears risk -You need an 1) insurance license 2) a securities license 3) suitability 4) prospectus 5) register with SEC 1993 and provide full and fair disclosure since its a security*** -Best for clients who want to keep up with inflation and take on moderate risk -death benefit -Not a security, just insurance. only need insurance license -Typically no front load but a back end with a CDSC. However unlike, MF there is no limit to the sales charge (MF is 8.5%) but it must be reasonable.

Zero coupon bonds characterises Yield? Good for what goals? Duration

-No reinvestment risk since no coupons and thus used to fund retirement and education funds -High volatility since no coupons -only bond where yield is locked since no coupons -education and retirement -Duration = 0

non qualified annuities vs qualified(2) There is never what kind of tax with annuities ____

-Non qualified: No RMD age, BUT STILL A 10% EARLY WITHDRAWAL UNDER 59.5 ON EARNINGS, only earnings are taxable at ordinary into,e -Qualified: RMD is 59.5 and the entire withdrawal is taxable -- 10% tax penalty on the earnings if you take out before 59.5 (not the whole contribution so if you contributed 40 and now its at 100, you only get the 10% penalty (not taxed) on the earnings ) -never capital gains tax Do annuity tax screenshot

Who are not eligible for breakpoints/quantity discount

-Parents combined with children but who are adults (35 year old son on an joint account with his dad) are not elible -Investments clubs are not

Exploitation of a specific person? AGE?** for what type of people Halts what?***

-Specified person = impaired or 65><18, For retail, not institutional -The firm needs to make an effort to ask for a trusted contact but does NOT NEED a trusted contact to open the account -The member firm may disclose info about the account to the trusted contact -May put (not mandatory) a hold on the DISTRIBUTIONS (like wires, not sell orders) account for 15 days if they suspect exploitation

ADR vs common stock

-The bank technically holds/owns the stock (registered) Has dividends (in USD) but no voting rights -That dividend has a withholding tax/foreign income tax but can be taken as credit

What does it mean when the bond and stock are trading at parity? Bond trading at 1,200 with a conversation price of 50, what is the parity price

-The difference between the price of the bond and the par value must be the same difference of the price of the underlying common stock and the conversion price -To find the parity price of the stock Bond trading at 1,200 with a par of 1,000= 20% Conversion price is 50, so what is the stock trading at parity? 50*1.2=60 To find the parity price of the bond -Stock is trading at 45, and the conversion is 50= 10% difference -Bond par is 1000, so the bond is trading at 900 (1000*10%) Do parity screenshot

Strips Maturity

-US gov zero coupon bonds and thus is at a discount and it locks in yield. Thus, don't make interest payments and have low reinvestment risk -long term despite being a zero coupon -Made up of stripped gov notes and bonds (not t bills) because they separate the coupon and principal

Customer Identification Program (CIP) How long must you maintain?**

-Verify the customer when opening an account under USA Patriot Act They need a customers: name, address, SS/Tax payer # and date of birth 5 years

statutory voting vs Culmative Which voting benefits who?

-You have 1 vote per share -Under statutory you can use that one vote for each election. So if there are 3 elections you get 1 vote for each election -Under calmative, you have 3 total votes that you can allocate anyway. So 3 votes for 1 election, or 2 votes for 1 election and 1 vote for the other election. -Culm benefits smaller investors while statutory benefits larger.

Tax on zero coupon bonds What if you hold a zero coupon to maturity or sell it early? Capital Gain Tax on regular bonds Make sure what?

-You owe tax on the annual accretion which is called phantom income but if you hold the zero to maturity (don't sell early) you will have no capital gain tax, just the tax on the annual accretion - If you do sell early your capital gain or loss is the purchase price + accretion - selling price You buy a 2 year zero coupon for 90 dollars so annually you get 50 dollars (100 of profit/2yrs). You get taxed on that 50 dollars each year but your cost basis adjusts up 50 dollars a year. So if you hold until maturity your cost basis is 1000 and you get 1000 principal so NO CAPITAL GAIN. If you sell early lets say a year, your cost basis you sold it for is 900+50 (accretion) = 950 and lets say you sold it for 930. You incur a 20 dollar capital loss. accretion screenshot Tax on regular bonds is simply purchase price - sale price. If held to maturity sale price is par and no capital gain You multiple the price if its at 90 by 10

annuity Whats the benefit? Talk about what life insurance is vs an annuity

-a contract between an individual and a life insurance company, where you You pay a premium ,either lump sum or periodically, and get RETIREMENT income for LIFE -Tax deferred and thus after tax -Life insurance is just a payment, not income

Interval funds? What kind of fund? For what kind of investors?

-closed end investment companies but DONT trade in the secondary market like closed end funds -You can redeem shares only at intervals which allows the manager to make illiquid investments thus better for long term investors

How is interest on direct debt issued by US gov taxed How is interest on Mortgage-Backed Agency Securities and ***CMOs taxed*** What companies? How is interest on Taxation of Nonmortgaged-Backed Agency Securities. What companies? How is interest on munis taxed Corporate Bonds** US Territories**

-direct debt (T-bills, T-notes, T-bonds, and STRIPS) are taxed on the federal level but not state or local -Interest earned on GNMA, FHLMC, and FNMA certificates is taxable at the federal, state, and local levels -taxed on the federal level but not state or local. Sallie Mae, Farm Credit System and Federal Home Loan Banks - taxed on the muni level (state and local) (unless you live in that state and local), exempt from fed -taxed on all 3 -taxed exempt on all 3

Deferred Compensation Plans what are the risks? Who are they best for?

-employee agrees to defer receipt of current income in favor of payout at retirement (lower tax) -If you leave early you may lose some benefits -risky because the employee covered by the plan have no right to plan benefits if the business fails -will become a general creditor of the company and will be on the same level as unsecured bondholders in the liquidation priority. -Highly compensated employees who are a few years from retirement

Bankers acceptance (BAs) Maturity?

-finance international trade (import/export business) -270 days or less

Trust indenture (or bond resolution) Covenants? For what kind of bonds Requeired

-include PROTECTIVE covenants (or promises) between the issuer and the trustee for the bondholders' benefit. Among these covenants are the flow of funds and the rate covenant. -a trustee appointed in the indenture supervises the issuer's compliance with the bond covenants/protects the bond holde -Rev Bond -Not required for MUNIS (but is for corporate bonds) per the trust indenture act of 1939 but enhances the marketability EX. Maintenance covenant. A promise to maintain the equipment and facility/facilities. Rate covenant. A promise to maintain rates sufficient to pay expenses and debt service.

UIT 2 characteristics? What happens to the shares? The portfolio is what?

-investment company (not a managed investment company) -Does not have 1) advisors actively manage their portfolio 2) board of directions -THUS PORTFOLIO IS FIXED, and portfolio matures on a specific day -Shares are redeemed

Treasury Stock (2) Issue vs outstanding stock?

-issued stock a corporation has issued and subsequently reacquired -no rights or voting power -has been authorized and issued but no longer outstanding -issued stock(stock sold to investors) - treasury stock = outstanding stock

Federal Farm Credit System Owner? Maturity range

-lending institutions that provides agricultural financing and credit. -privately owned, government-sponsored enterprise and thus not backed by US -discount notes, floating rate bonds, and fixed rate bonds -maturities range from one day to 30 years

What MF fees are part of the operating expense

-management fees and custodial fees

Rights offering Culm right Existing (ex) rights for ex dividend day

-new shares are sold to existing shareholders at a discount -Cum Rights (with rights) theoretical value: (market price - subscription price) / # of rights needed +1 -Ex rights (stock trading without rights) theoretical value: (market price - subscription price) / # of rights needed

Ad Valorem Taxes 7 mills = . How to find the property tax?

-property taxes that are based on the market value of the property -.007 - Assessed valuation * mill rate = property tax

What do shareholders vote on?*******

-stock splits, board members, issuance of new equity, M&A -NOT dividends or officers ike CEO but they do vote on directors

Annuitize Accumulation units vs annuity units # of annuity units**?? What is the accumulation units?**** What does the account current value=

-wishing to receive scheduled payments for life (not lump sum) -When a variable annuity contract is annuitized, accumulation units are exchanged for annuity units as you transition from the accumulation phase to the annuity phase (payout) -The # of annuity units is fixed but the value of each can change The accumulation units is basically how many units you own in the separate account and you can purchase more thus the # of accumulation units is varibale. The value of accumulation units is variable and is determined by the performance of the separate account. # Accumulation units * unit value=accounts current value EX. accumulation units SS

What happens if a client gives you instructions to purchase a unsuitable security and where do you mark it?** What happens if a client will only give you limited personal info or won't provide suitability info and wants you to invest for them

-you can just enter the order but the ticket should say unsolicited -When limited information is provided for the account, the registered representative will be limited to making recommendations that she believes suitability based on the limited info. It is when the customer insists on making a trade that is considered unsuitable that the order must be marked unsolicited.

Grey Market Third market (nasdaq inter market) Both what?

1) BDs are unwilling to quote them due to such little investor interest and little company info 2) Portion of the OTC where companies that have been delisted for regulatory reasons are traded -Listed securities trade OTC but must be reported within 90 seconds -Both OTC

How are T notes and T bonds quoted ***** A bid of 98.12 = Spread of 89.12-89.16 = T bills and other discount instruments are quoted by

12 [NOT .12] /32=.375 --> 98+.375=98.375x10=983.75 89.16-89.12=.04 --> 4 (not .04) /32=.125 --> .125 x 10 = 1.25 -the yield with the bid higher than the ask which is opposite of stocks but makes sense since the higher yield equals lower price so the bid is lower than the ask. EX. bid 1.15 and ask 1.12 -all discount instruments are quoted as a yield EX. SS bond note and bond calc

You can move money from one IRA WITHOUT A 10% penalty on earnings

60-day rollover (AKA IRA Rollover) -Employee receives the fund, unlike in a direct rollover when its institution to institution -IRA to IRA or employer-sponsored retirement plan to an IRA -Can only do this Once every 12 months, and you must deposit the funds after you receive them into the IRA within in a 60 day period, and 100% of funds must be withdrawn Direct rollover - money is never seen by the employee (institution to institution), involves two different plans. EX. employee sponsored plan (401k) to IRA, money is never seen by the employee (institution to institution), unlimited times per year, no 60 day period either

When can a firm make a recommendation? Rule 2111 3 obligations

A recommendation may be made if the firm has a reasonable basis to believe it is suitable. -Reasonable-basis suitability 1) have a reasonable basis to believe that a recommendation is suitable for at least some investors. 2) Must be able to explain the risks 3)more than 1 investor -customer-specific suitability: has to have a reasonable basis to believe that the recommendation is suitable for a specific customer (not "at least some investors" aka more than 1 like reasonable basis suitability. ) -quantitative suitability: Multiple Investments made must be suitable when looking at all the investments as a whole. (Cant just say an investment is suitable looking at it solo and not if its suitable in combination of other investments its with)

Calculating the capital gain of muni bonds bought at a premium vs (see below) Calculating the capital gain of muni bonds bought at a discount

A) You amortized down the premium over the life of the maturity and reduce the cost basis every year by that. B) if you hold it till maturity there is no capital gain C) Decreases interest income A customer buys a five-year municipal bond at 105. Two years later, the bond is sold at 104. What is the customer's gain or loss? The premium of five points must be amortized over a five-year period, so the annual amortization is one point, or $10 per bond. After two years, the bond's cost basis is 103. Therefore, a sale at 104 creates a one-point capital gain per bond. EX. DO premium amortisation

An investor owns ten ABC 6s of 2045. The debentures have a conversion price of $50 with an anti-dilution provision. After ABC distributes a 20% stock dividend, the new conversion price is A stock dividend will always do what to the conversion price

Always first do 1000/50= 20 20*1.2=24 1000/24=41.6 -LOWER IT

Calculating the capital gain and TAX of muni bonds bought at a discount (in the secondary market, not a new issue like below) Calculating the capital gain and TAX of Original Issue Bonds

Issue purchased at a discount A) If you sell it early you subtract (not add like amortisation for a premium) the accretion from the cost basis per year to find the 1) cost basis and then 2) the accretion is taxed as ordinary income B) Cost basis and interest income are increased Assume a customer buys a 5% municipal bond with a 10-year maturity at 90 in the secondary market. Five years later, the customer sells the bond at 97. What are the tax consequences? The annual accretion of $10 per bond is taxable each year as ordinary income. The customer's cost basis at the time of sale is 95. When sold at 97, the customer has a capital gain of $20 per bond. B) if you hold it till maturity there is no capital gain but I believe the accretion is still taxed _________________ ORIGINAL ISSUE Discount bond (OID) purchased at a discount A) Same 1) exact same 2) but the accretion is not taxed as ordinary income B) is exact same An investor purchases 100 original issue discount (OID) municipal bonds at 95 with a 10-year maturity. If the bonds are held to maturity, the investor's tax consequences are $5,000 tax-free income.

Roth IRA VS IRA 10% tax on what

Roth -Nondeductible contributions and thus funded with after tax dollars withdrawals are tax free if you're older than 59.5 and have held the account for 5 years -If because of death, disability, or first-time home purchase, the distribution is qualified and not subject to tax or the 10% penalty on EARNINGS -Anyone (any age) can open a Roth IRA as long as they have earned income thats not over a certain limit -6000 a year or 100% of earned income, whatever is less -must be a named beneficiary (who can be a minor). -No RMD IRA -CAN be Deductible contributions (depending on income) and thus funded with pre tax dollars and all withdrawals are taxed at ordinary income. There will be a penalty of 10% if they withdraw before 59.5 -RMDs after 72 -must be a named beneficiary (who can be a minor). -6000 a year or 100% of earned income, whatever is less or 7000 if older than 50 or 12,000 for combined spouse -6% over contribution fee

Flow of Funds - >Net Revenue Pledge ->net revenues If the issuer has not pledged to pay operating and maintenance expenses first, _______ is the expense paid first. When _______ is paid first, the flow of funds is called a ______ Where is this?

The order in which revenue from a revenue bond is used to pay expenses is the flow of funds. -There is something called a net revenue pledge which states "Operations & Maintenance" are paid first and then the rest of the revenue called "net revenues" are used to pay down the rest of the expenses. Debt service account. Used to pay the interest and principal maturing in the current year and serves as a sinking fund for term issues. Gross Revenue pledge -In the bond contract within the bond resolution or trust indenture Do 35 on unit 3-15 q bank - kind of relevant

How do you know there is a yield to call

There will only be a YTC for bonds a premium (coupon>ytm) because why would an issuer call a bond when you can get it at a discount

Tax Equivalent Yield

the rate of return that a taxable bond must offer to equal the tax-exempt yield on a municipal bond. Muni coupon/ (1- tax rate)