SIE Exam Part 3

For three and six year records, the most recent two years must be kept

"readily accessible", meaning at the branch office, OSJ, or headquarters where the document would normally be stored After 2 years, they may be stored at an offsite location so long as the records may be retrieved

Trade confirmations and delivery requirements

*Trade confirmation is a printed document that confirms a trade, settlement date, amount of money due or owed. For each transaction, a customer must be sent or given a written confirmation of the trade at or before the completion of the transaction - the settlement date Trade confirmation includes: 1. Trade date 2. Account number 3.RR internal ID number 4.Indication of trade (Bought or sold) 5. Number of shares 6. Description 7. Yield 8.CUSIP, if any 9. Price 10. Amount paid or received 11. Commission 12.Net amount 13. Capacity in which the BD acts Confirmation must also show the capacity in which the BD acts (agency or principal) and the commission in cases where the BD acts as an agent

Ask example

BCO stock is ask 42.5, size 12 Someone willing to sell as many as 1,200 shares at BCO at $42.50/share If the customer wants to buy some BCO stock, he knows he can buy as many as 1,200 shares at 42.50 a share

Bid example

BCO stock is bid 42, size 10 Buyer is willing to buy up to 1,000 shares of BCO at $42/share If your customer wants to sell some BCO stock, he knows that he could sell as much as 1,000 shares at $42/share

House call

BD is allowed to have higher minimums

What are the three As for discretionary trade?

1. An action (buy or sell) 2. The amount of the trade (shares or dollars) 3. The specific asset to be traded (what you are buying or selling) If customer provides all three to me, then that is NOT discretion If the rep chooses one or more of the three A elements without the client's specific agreement, it is a discretionary trade

To prevent, the rules regarding the account of seniors and other specified adult customer do two things:

1. Member firms and associated persons must make "reasonable efforts" to obtain the name and contact information for a trusted contact person 2. Member firms will be permitted to, but not required to, place temporary holds on customer accounts when there is a reasonable belief of financial exploitation

SARs must be filed within how many days

30 day! Act requires the SAR to remain confidential Act also requires firms to make and retain records relating to wire transfers of $3,000 or more

Account updating

30 days of opening the account Must be updated with 30 days of receipt of notice of any change Account updating must occur at least every 36 months thereafter

In Investment advisory accounts

BD must meed the fiduciary requirements under the Investment Advisers Act of 1940 and Client may be able to get all of the same services on a separate basis for less cost

What has to happen by the end of the settlement day?

BD representing the seller receives the cash due the seller and the BD representing the buyer receives the securities due the buyer in good order

Guarantees and sharing in customer accounts

BDs, investment advisers, and RRs may NOT guarantee any customer against a loss or guarantee a gain Member firms and reps are also prohibited from sharing in profits or losses in a customer's account

Bullish

Buy Long Bullish when buying to open a position

Examples of red flags

A customer exhibiting a lack of concern regarding risks, commissions, or other transaction costs A customer attempting to make frequent or large deposits of currency or cashier's checks A customer making a large number of wire transfers to unrelated third parties A customer engaging in excessive journal entries between unrelated accounts A customer who designs currency deposits or wirhtdrawals to fall under the $10,000 cash transaction report (CTR) filing threshold - structuring

Discretionary Trades

A customer may grant trading authority to a registered representative (RR) to place trades in their account without preauthorization from the customer Requires specific authorization to place such trades

Ex of stop order

Buy 2,000 shares at 15 stop As soon as stock trades at or through the stop price of 15, the order will become a live working market order and will be executed immediately at the next available price. Stop order triggers if the CVM rises to (or above) 15

Ex of stop limit order

Buy 2,000 shares at 15 stop limit 16 As soon as XYZ trades at or through the stop price of 15, this order will come a live working limit order and it will only be executed if the stock can be purchased for $16 (limit price) or less

Transfer on Death (TOD)

A designation that an owner may add to an account that allows the owner to pass all or a portion of the account to a named beneficiary at death Account avoids probate because the estate is bypassed Assets in the account do not avoid estate tax May be added to individual or JTWROS accounts

Market rumors

Misleading information or rumors can be used to manipulate the price of a stock up or down Spreading false information and market rumors prohibited

Matched orders (painting the tape)

A manipulation that involves one party selling stock to another with the understanding that the stock will be repurchased later at virtually the same price Intention is to make it appear that far more activity in a stock exists than it actually does

Total Return

A measure of the return an investor receives from an investment that includes both income and any gain or loss realized Expressed as a % of the cost basis of the investment

Current Yield

A measurement of the amount on income an investor will receive as a percentage of the cost of the investment Applies to both stocks and bonds

New member firm regarding retail communication

A new member firm is required to file a copy of all retail communication with FINRA at least 10 days before use Filing is just a record with FINRA, no approval from FINRA is required

Custodian has full control over the minor's account and can:

Buy or sell securities Exercise rights and warrants, or Liquidate, trade, or hold securities

Defined benefit plans

A plan defines within the plan document the benefit it will pay to retirees - pension plans This plan will determine a benefit that retirees receive based on years of service, age, and salary at the time of retirement Investment risk on the company, employers are required to make the payments as defined in the plan A formula based plan Better for older employees

Cannot be bought on margin, but CAN be used as collateral after being held for 30 days:

Mutual funds New issues if they meet the requirements listed above

Trusted contact person

A reasonable effort to obtain name and contact info for a trusted contact person MUST be made when opening a customer's accounts, or updating the account information for an existing account Trusted person is intended to be a resource for the member firm in administering the customer's account, protecting assets, and responding to possible financial exploitation

Stop orders

Buy or sell, a stop order does not become a "live" working order in the marketplace until the stock trades at or through a specified price (the stop price) Once the order is triggered by the stock reaching the specific stop price, the order becomes a market order and should be executed immediately at the best available market price

Stop limit orders

Buy or sell, has a stop price and does not become a "live" working order until the stock trades at or through the stop price Has a limit price, so once the order is "triggered" by the stock reaching a specific stop price, the order becomes a limit order to buy or sell at the specified limit

Long position

Buy to open Sell to close Long position is closed by selling the position, a closing sale

Telephone solicitation

A telephone call initiated for the purpose of encouraging the purchase of or investment in property, goods, or services

Trust Accounts

A trust is a way to hold assets that allows for greater flexibility in assigning the different aspects of ownership Assets that are held in trust belong to the trust Assets are placed into trust by a grantor (or settlor): the person who owns the asset

Tenants in Common (TIC)

Deceased tenant's fractional interest in the account is retained by the tenant's estate and is not passed to the surviving tenant Tenants should have an agreement as to what % of the account is owned by each tenant - if no agreement, assume the account is owned equally When a tenant dies, the dependent's portion of the account is identified and distributed to their estate Account will remain frozen (no trading or withdrawals) until the required estate paperwork has been received and processed

Joint Tenants with Rights of Survivorship (JTWROS)

Deceased tenant's interest in the account passes to the surviving tenant (s) All tenants have an undivided interest in the account - all tenants own all of the account equally Very common for married couples, if one dies, the surviving spouse may continue managing the account with little difficulty

Ex of CY

ABC corporation pays a $0.25 quarterly dividend. ABC stock is trading at $20 a share. What is the CY of the ABC stock? .25 x 4 = 1 (annual income) 1 / 20 = 0.05 or 5%

For distributions to be qualified in Roth and exceptions

Account holder must have held a Roth IRA for at least five years before the distribution and the account holder must be age 59.5 or older Exceptions to the age limit: - death (no penalty) - disability of the account owner - a first-time home purchaser (up to $10,000)

Custodial Accounts

Accounts set up for minor can be established under UGMA or UTMA These accounts require an adult to act as custodian for a minor Any kind of security or cash may be given to the account without limitation Any assets given to the a minor are managed by a custodian until the minor reaches the age of majority

Accounts that MUST be opened as cash accounts

Accounts that have contribution limits (IRAs and other retirement plans) Custodial accounts under UTMA and UGMA

Three years

Advertising Trial balances Form U-4 U-5 Fingerprint card for terminated personnel Customer confirmations Order tickets Other ledgers such as securities borrowed and securities loan Monies borrowed and monies loaned Dividends and interest received A list of every office where each associated person regularly conducts business Associated person's compensation records The firm's compliance Procedures manual

One business day settlements (T+1)

All Treasury securities: T-bills, T-notes, and T-bonds in a regular way settlement

Individual Retirement Accounts (IRAs)

All employed individuals may open and contribute to an IRA IRAs are not considered qualified plans by the IRS Qualified plans require an employee sponsor Individuals contributing to an IRA can take a tax deduction for the amount of the contribution if certain criteria are met If an individual is not actively participating in other qualified plans such as a 401k, the full amount of the contribution to the IRA is deductible Earnings will be tax deferred Contributions to IRAs are made out of earned income, not ordinary income - no age limit for making contributions

Price Authority

Allowing the rep to choose the time or the price at which a trade is executed is not considered discretion, its price authority

Limited power of attorney (LPOA)

Allows the appointed person to have some, but not total, control over the account Document specified level of access the person may exercise Common use would be a spouse granting LPOA for an IRA account

Hypothecation agreement

Allows the securities to be pledged for the loan and gives permission to the BD to rep ledge customer margin securities as collateral

Margin Account

An account feature that allows the customer to purchase securities without all the cash, borrowing some money to pay for the purchase

Individual Accounts

An account has one beneficial owner Account holder is the only person who can control the investments within the account and request distributions of cash or securities from the account Upon death, account assets are distributed through to the owner's estate unless other arrangements were made ahead of time One owner, one authorized trader

Rules of Custodian account

An account may only have ONE custodian and one minor or beneficial owner Only an individual can be custodian for a minor's account A minor can be the beneficiary of more than one account, and a person may serve as a custodian for more than one account, as long as each account benefits only ONE minor Unless they are acting as custodians, parents have no legal control over a custodial account or the securities in it

Qualified retirement savings plans that require sponsorship by an employer (only available to employees)

Defined Benefit Plan (traditional pension plan) Defined Contribution plans

Risk of short

That the price of the borrowed shares increases, forcing the seller to buy back at a higher price instead of a lower price as anticipated Because there is no limit on how high a security's price may rise, a short seller has unlimited loss potential - gain potential is limited because at best the price will fall to zero

Wash sale

An attempt to create a loss for tax purposes (sell at a loss) when one's intent is to still maintain ownership of the securities Any repurchase of the same within 30 days before or after the date establishing the loss would be recognized as one's intent to maintain ownership Wash sale is not illegal, but attempting to use the losses from the wash sale in order to reduce taxes is illegal

Principal Approval regarding institutional communications

Each firm must establish if they will require principal approval of institutional communication before use or allow for post-use approval If BD does not require prior principal approval, it must provide for education and training of associated persons regarding institutional communicaton

Short against the box

An investor borrows and sells short stock that she owns Does not sell the stock one owns but borrows the shares and sells Used to delay the realization of capital gain until a later time, usually the following tax year

Partnership Accounts

An incorporated association of two or more individuals Must have a written partnership agreement and an authorization from the partners stating which of the partners can make transaction for the account

Selling short and buying to close/cover

An investor can sell a security to open a position Done by selling a security he does not own - done by borrowing stock from a stock lender and selling (shorting) the borrowed shares

Sell stop order

An instructions to sell at the market when a trade occurs at or below the stop price Place a sell stop order at 38 when ABC is trading at 40. The stop is triggered at 38, then becomes a market order and can fill at any price

Reverse Even Split math

An investor owns 100 shares at $5 Total position = 100 x 5 = $5,000 Assume a 1:4 reverse split New number of shares = 100 x 1 = 100 100 / 4 = 25 500 / 25 = $20 Investor now owns 25 shares at $20 per share *Uneven not tested*

Even forward split math

An investor owns 100 shares at $60 a share. Therefore, the total position value is $6,000 Assume a 2:1 split: 100 x 2 = 200 200 / 1 = 200 Investor will receive an additional 100 shares from the split for a total of 200 shares new value per share: 6,000 / 200 (post split) = $30 Investor now owns 200 shares at $30 per share

Tender offer

An offer to buy a security directly from the owners of the security (and not through secondary markets) Corporations may take a tender offer on their own debt as a way to retire the debt early Normally cash offers

Ask (offer)

Ask price is the lowest amount someone is currently willing to sell the security for Size is the number of shares that someone is willing to sell at the ask "I will sell this stick at this price" If an investor wants to buy, she is buying from the person making the offers so the ask price is the price a buyer pays

Two federal agencies empowered to deal with this abuse:

Federal Reserve US Treasury Department Must be kept for 5 YEARS!

Formula for current yield

Annual income (in dollars) / current market value = CY **CY is an annual figure so make sure you use the annual amount of the dividend before you divide Typically in quarters so multiply it by 4 to get annual

Fiduciary

Any personal legally appointed and authorized to represent another person, act on their behalf, and make whatever decisions are necessary to the prudent management of her account

Institutional Communications

Any written (including electronic) communications that is distributed or made available only to institutional investors, but it does not include a member's internal communications Ex. Another member firm or RR, a bank, savings and loan association, an insurance company, a registered investment company (mutual fund), an employee benefit plan, a governmental entity or subdivision, a person acting solely on behalf of an institutional investor, and an entity with $50 million or more of total assets, including natural persons

Long-term capital gains

Are taxed at an advantages rate long-term rate is almost always lower than the investor's ordinary income tax rate

Currency Transaction Reports (CTRs)

Bank Secrecy Act requires BDs to report any currency received in the amount of more than $10,000 on a single day CTRs involve deposits of currency, not checks or wire transfers, and not necessarily US dollars

Money Laundering: Which Act?

Bank Secrecy Act: established the US treasury department as the lead agency for developing regulations in connections with anti-money laundry (ALM) programs

Buy stop order

Becomes a market order and fills at the next available price once it touches or passes through the stop price Buy stop at 39 would fill at the next available price after the market price rises to 39

Benefit amount and contribution amount in defined benefit plan

Benefit amount is fixed Contribution amount can vary The employee is promised a certain amount at retirement and the employer has to put in enough money to meet that promise Changing rates of return can require changing deposits to meet the promised accounts at retirement

Tipper and tippee

Both are liable, as is anyone who trades on information that they know or should know is not public or who has control over the misuse of this information

Ex

Capital gains: $24,000 Capital loss: $32,000 Net losses: $8,000 Investor may reduce their ordinary income by $3,000 and may carry the reminding $5,000 of losses into the new tax year

Standarized

Cash & stock dividends Even and uneven splits - both forward and reverse Issuance of rights and warrants

Traditional IRA ineligible investments

Collectibles (antiques, gems, rare coins, works of art, stamps_) Life insurance contracts may not be purchased in an IRA Annuities are allowed

Commission-based trading account

Commissions is charged for each transaction

A person making g a recommendation should consider the circumstances of:

Communication The knowledge and sophistication of the recipient And their circumstances lack of intent to provide a recommendation does not prevent a communication that meets the above criteria from being considered as such

Correspondence

Communication distributed or made available to 25 or LESS retail investors within any 30-day-calendar-day period Filing and requirements is like institutional

Retail Communication

Communication distributed or made available to MORE than 25 retail investors within any 30-day-calendar period Required of first to send a copy of the retail communication to FINRA for filing Not an approval process, just a file copy of the communication

True for qualified plans but not true for non qualified plans

Contributions are tax deductible Plans need IRS approval

Two business days (T+2)

Corporate issues (stocks and bonds) Municipal debt Agency securities such as GNMA GSE securities such as FNMA and FHLMC

Spin-off

Corporations forms a subsidiary company out of some of the corporation's assets and operations It thens issues shares of the newly formed corporation to the shareholder of the original company

Corporate Accounts

Corporations may desire to open a brokerage account When opening an account for a corporation, a firm must obtain a copy of the corporate charter, as well as a corporate resolution

Close the position short

Covering the position: buy back the security at a lower price for profit is the goal

3 Forms associated with adding margin borrowing to an account

Credit agreement Hypothecation agreement Consent to loan agreement

Advantages of margin accounts for customers

Customer can purchase more securities with a lower initial cash outlay and leverage the investment by borrowing a portion of the purchase price

Rehypothecated

Customer pledged the stock to the firm, which has now pledged it to a bank

Nonfinancial Circumstances

Customer's age Marital state number and ages of customer's dependents Customer's employment status Employment of customer's immediate family members

Nonpublic personal information

Customer's: SS # Account balances Transaction history Any information collected through an internet cookie

Risk document includes:

Customers are not entitled to choose which securities can be sold if a maintenance call is not met Customer can lose more money than initially deposited Customers are not entitled to an extension of time to meet a margin call Firms can increase their in-house margin requirements without advance notice

Initial margin deposit requirements under FINRA and Reg T

Customers are required to deposit a minimum amount of equity for their first purchase in a margin account Reg T states that a deposit of 50% of the market value of the purchase is required FINRA also has an initial requirement of $2,000 or 100%, whichever is less Customer is required to deposit the greater of the Reg T requirement or the FINRA min

BCP plans must address certain points having to do with the consequences of the event, including

Data backup and recovery (hard copy and electronic) Alternate communications between the firm and its customers Alternate communications between the firm and its employees Alternate physical location of employees Communications with regulators Prompt customer access to funds and securities in the event the firm is unable to continue its business

Time restrictions

Day order: an order is assumed to be a day order, this is the default time limit Day order is valid only until the close of trading on the day it is entered If the order has not be filled, it is canceled at the close the day's trading More important with limit orders If the order is partially filled, then any unexecuted portion of the order is canceled at the end of the trading day

Market-at-open or Market-at-close order

Designated to be executed at the opening of the day or at the close of the day Depending on the market (exchange or OTC) the order is being sent to, the price at, or close to, the first or last price of the day

Restricted persons under Rule 5130

Designed to protect the integrity of the public offering process and public investors

Structuring

Designing deposits to fall under the $10,000 radar is a prohibited activity Financial institutions should have systems in place to monitor for and recognize such attempts

Credit agreement

Discloses the terms of the credit extended by the BD, including the method of interest computation and situations under which interest rates may change

Bounties

Dodd-Frank legislation awards may now be paid in connection with original information concerning any violation of securities law, including insider trading 10%-30% of amount recovered awarded, based on the information received

Regulation S-P

Enacted by the SEC to protect the privacy of customer information Deals with nonpublic personal information

The Telephone Consumer Protection Act of 1991 (TCPA)

Enacted to protect consumers from unwanted telephone solicitations (telemarketing)

Basic rules under TCPA

Ensure that anyone making cold calls informs prospects of their name, the company's name, and the company's telephone number or address Ensure that solicitation occurs ONLY between 8:00 AM and 9:00 PM based on the prospect's time zone No calls to numbers on the company or federal do-not-call list

Marking the open

Entering orders before the opening for a stock or falsely reporting trades that never occurred to influence the opening price of a stock

Marking the close and marking the open

Entering trades before the opening (or at or near the close) solely to manipulate the reported price of where a stock will open or close is prohibited

Proxy voting

Every publicly traded company must have an annual general shareholder meeting where management presents any decisions that would require shareholder approval Proxy is like absentee ballot - limited power of attorney that a stockholder gives to another person, transferring the right to vote on the stockholder's behalf

Securities that may be purchased on margin and used as collateral under Reg T:

Exchange-listed stocks, bonds Nasdaq stocks OTC issues approved by the FRB for margin Warrants

Senior Clients

FINRA defines seniors as: Age 65, or older, or Age 18 and older, whom the member reasonably believes has a mental or physical impairment that renders the individual unable to protect her own interests

BCP review

FINRA must designate a member of senior management to approve, update, and conduct an annual review of the plan FINRA requires firms to provide them with the names of 2 emergency contact persons - Both must be associated persons and at least one must be a principal and part of senior management

Business continuity plan (BCP)

FINRA requires member firms to create and maintain a BCP to deal with the possibility of a significant business disruption

Account statement delivery

FINRA requires members to send statements to customers at least quarterly If penny stocks are held in the account, a statement must be sent that month

Changing Regulation T requirements

FRB can change Reg T at any time, but the current requirement. (50%) has been in place since 1974. Reg T = 50%

Fill Restrictions

Fill-or-kill (FOK) Immediate-or-cancel (IOC) All-or-none (AON) These are ONLY for limit orders. Market order is always filled at the best available price and immediately

Chief anti-money laundering officer

Firms are required to designate a chief anti-money laundering officer No requirement for this person to be registered as a representative or a principal Officer will establish internal compliance procedures to detect abuses Red flags should be reported to the principal designated to receive such reports

Nontrade confirmations/third-party activity notices

Firms are required to send confirmations of activity in accounts even when the activity is not trade related or initiated by a third party Foreign bank account wire money deposit or withdrawal of a stock certificate is made outside money manager

BCP disclosure

Firms must disclose to its customers how it will respond to significant events of varying scope Disclosure must be made in writing to customers at the time of account opening, posted on the firm's website, and mailed to customers on request

Updating customer account records from a BD

Firms must furnish to each customer, within 30 days of opening the account, a copy of the account record Firms must include a statement that the customer should mark any corrections on the record and return it along with a statement that the customer shoudl notify the firm of any changes

Regulation SP privacy notifications

Firms must provide their customers with a description of their privacy policies (privacy notice) Notice must state the types of personal information that the firm collects and who the firm shares this information with Firms must initially provide every customer with a privacy notice at the time the relationship is first established

Wrap Accounts

Firms provide a group of services, such as asset allocation, portfolio management, executions, and administrations for a SINGLE fee Fee may be a set monthly or quarterly amount but is most often a % of assets under management (AUM)

Lending to customers

Firms that permit lending arrangements between representatives and customers must have written procedures in place to monitor such activity

Placement

First stage is when funds or assets are moved into he laundering system This stage is recognized as the time when illegal funds are the most susceptible to detection

Stock splits

Forward split Reverse split

Capital gains and capital losses

Generated from closing an open position at a profit If you close an open position for a loss

Power of Attorney (POA)

Granted to a natural person such as a representative or an attorney, not a firm All POAs are canceled upon death of either party All persons so appointed have a fiduciary duty to the account's owners

Full power of attorney (FPOA)

Grants the appointed person the power to deposit or withdraw cash or securities and make investment decisions for the account Has much the same power over the account as the owner of the account

Unsolicited Trade

If a client places a trade that has not been suggested by the BD or a rep, it will be considered unsolicited Trade ticket or order from from an unsolicited trade should be marked "unsolicited"

Exception to sharing in profits

If a joint account has received the member firm's prior written approval and the RR shares int he profits and losses only to the extent o this proportionate financial contribution to the joint account **Firms cannot have joint accounts with customers

Bear

If a person believes that a given market or stock is going to go DOWN in value Bearish or bear If you are a short stock, you are a bear

Bull

If a person believes that a given market or stock is likely to go UP in value rather than down Bullish or a bull If you are a long stock, you are a bull

Solicited Trade

If a representative or a communication from a BD introduced the purchase of a specific security to a customer, the trade is solicited If something the BD or the representative did led to the customer placing a trade for a specific security, it is probably solicited

Contributions to Roth IRA

Not deductible from current income an investor's eligibility to contribute to a Roth is phased out at higher income limits, eventually falling on zero

Temporary Holds

If member firm reasonably believes that financial exploitation is or has occurred, it can place a temporary hold on disbursements of funds or securities Hold can be no longer than 15 days but state regulatory or agency of jurisdiction can terminate the hold sooner or extend it longer

Immediate-or-cancel (IOC)

If only a portion of the order can be filled, it is, and the remaining unexecuted portion is canceled

Proxy Solicitation

If proxies are solicited, the SEC requires a company to give stockholders information about the items to be voted on and allow the SEC to review this information before it sends the proxies to stockholders Everyone who participates MUST register with the SEC Anyone who is not a direct participant but who provides stockholders with unsolicited advice must register as a participant

Consent to loan agreement

If signed, the loan consent form gives permission to the firm to loan the customers margin securities to other customers or BDs, usually to facilitate short sales where securities need to be borrowed Loan consent is optional BD may make it mandatory for its margin customers, but the form is not a regulatory requirement

RMD failure to withdraw

If the account holder fails to take the RMD by the required date, the difference between any amount that was withdrawn and the RMD requirement will be subject to a 50% penalty

Ex of contribution

If the annual maximum contribution for IRAs is $6,000, an investor could contribute $4,000 to a traditional IRA and $2,000 to a Roth IRA, for a total contribution to all IRAs of $6,000

Maintenance Call

If the customer's equity drops below 25% of the account's market value, the customer receives a maintenance call Equity: if the stock's value drops, the customer's equity in the account also drops Customer is required to deposit additional assets to bring the equity in the account up to the 25% minimum

Confidentiality of information

If your firm reserves the right to disclose to unaffiliated third parties' nonpublic personal information, the notice must provide customers a reasonable means to opt out of this disclosure

Reverse Split

In order to combat the issue of a stock price becoming too low and not meeting the listing criteria of a stock exchange that it is listed on, and delisting can occur, a corporate can do a reverse stock split

Examples of financial circumstances

Income Value of their home Liquid net worth Debt payments Total debt

Passive income

Income from direct participation programs such as limited partnerships many real estate investments May produce passive losses as well as passive income A taxpayer who has passive losses each year may use those losses to offset any passive income received that tax year - passive losses may ONLY be used to offset passive income, cannot offset any other types of income

The act exempt calls

Made to parties with whom the caller has an established business relationship or from whom the caller has prior express permission or invitation Made on behalf of a tax-exempt nonprofit organization Not made for a commercial purpose, and Made for legitimate debt collection purposes

Investment Income

Income that is earned from one's investments Sometimes called portfolio income Dividends Interests Payments Income derived from an asset the investor holds

Forward split

Increases the number of shares and reduces the price without affecting the total market value of shares outstanding an investor will receive more shares, but the value of each share is reduced Done by corporations to make their stock price attractive Even or uneven split

Accounts that may have a margin feature

Individual and joint accounts Corporate and partnership accounts Trust and other fiduciary accounts Margin accounts would need to be approved by a principal of the firm before the first trade - the approval would need to be in accordance with whether or not margin is permissible for the type of account being set up

Stock/bond power in good delivery

Instead of signing the back of the certificate, the customer could sign a separate document common when certificates are mailed similar to an endorsed check may be used to replace the owner's signature on the back of a certificate

Three categories of communications:

Institutional Communications Retail Communications Correspondence

Traditional IRA investments

Investments can be made in stocks, bonds, investment company securities, US minted gold and silver coins and many other securities Eligible: stocks, bonds, mutual funds, unit investment trusts (UITs), government securities, US government issued gold and silver coins

Reverse split ownership of stocks

Investors will now own fewer shares at more worth per share The number of shares decrease while the price per share increases Cost basis per share will increase, whereas in a forward split, the total value of the position is unchanged by the split Can be uneven or even (similar to forward ratios)

FinCEN does not have an enforcement branch

Its an intelligence agency using the information available in the financial system to detect illegal activity

JTWROS vs TIC

JTWROS: all parties have an undivided interest in the account TIC: each party must specify a percentage interest in the account

A bid is always what than the ask price

LESS Bid is always LESS than the ask price

Specific authorization for discretionary trades

Limited power of attorney granted by the customer to the RR Trades must be marked as discretionary; failure to do so is serious violation

If a chart shows different bid and asks, to calculate spread

Lowest ask - highest bid = spread

The TCPA requires an organization that does telemarketing (cold calling) to:

Maintain a do-not-call list of prospects who do not want to be called, and keep a prospect's name on the list until the prospect requests its removal Institute a written policy on maintenance procedures for the do-not-call list Train representatives on using the list Ensure that representatives ackowledge and immediately record the names and telephone number of prospects who wish to not be called again Ensure that telemarketers do not call a prospect from the time of the prospect's do-not-call requests, and Ensure that the company's do-not-call list is no more than 30 days old

Opening a margin account

Mandatory of the customer to sign the credit agreement and hypothecation agreement but consent is optional and only needed when wanting to participate in that trade Must also provide customers with a risk disclosure document and information must be provided on an annual basis

Margin vs Marginal

Margin: the amount of equity that must be deposited to buy securities in a margin account Marginable: refers to securities that can be used as collateral in a margin account

Market Manipulations

Market Rumors Pump and dump Front running Excessive Trading (churning) Marking the close and marking the open Freeriding Matched orders

Coverdell Education Savings Account (Education IRA)

Max annual contribution limit is $2,000 Contributions not deductible Must cease when the beneficiary reaches age 18 Any unused balance must be rolled over or distributed by the time the beneficiary attains age 30 Excess amounts may be rolled over tax free to the account of another child of the same family once during any 12-month period Distributions are tax free if the funds are used for qualified education expenses - college, secondary, or elementary school Contribution limits may be reduced or eliminated for higher-income taxpayers

Other limitations

May be opened and managed as CASH accounts ONLY May not purchase securities in an account on margin or pledge them as collateral for a loan Custodian must reinvest all cash proceeds, dividends, and interest within a reasonable time Must take into account a minor's age and custodial relationship Stock subscription rights or warrants must be either exercised or sold Custodian cannot delegate away fiduciary responsibility but can grant trading authority and investment decisions to a qualified third party Custodian may loan money to an account but CANNOT borrow from it Custodian may be reimbursed for any reasonable expenses incurred in managing the account Under minor's SS # and taxed at the minor's tax rate If minor dies, securities pass to minor's estate If custodian dies or resigns, either a court of law or the donor of the securities in the account must appoint a new custodian

Sole Proprietor account

May have a business name associated with it, in addition to the owner's name Doing business as: additional form to add a fictitious business name to the account Checks deposited into the account could be made payable to the account owner or the business name

MSCI EAFE Index

Measures equity market performance of developed (First world) markets outside the US and Canada Europe, Australia, and Far East Most widely recognized index for foreign equities

Restricted persons, those not allowed to purchase shares at the POP, are

Member firms Employees of member firms Finders and fiduciaries acting on behalf of the managing underwriter, including attorneys, accountants, financial consultants, and so on Portfolio managers, including any person who has the authority to buy or sell securities for a bank, savings and loan association, insurance company, or investment company Any person owning 10% or more of a member firm Any immediate family member of any natural person of those listed above

Forwarding proxies

Member firms that are nominal owners of record (the stock is held in street name) must vote street name stock in accordance with the wishes of the beneficial owner (the BD's customers who purchased the shares)

Rule 5130 ensures that

Members make a bona fide public offering of securities at the public offering price (POP) Members do not withhold securities in a public offering for their own benefit or use such securities to reward person who are in a position to direct future business to the member, and Industry insiders, such as members and their associated persons, do not take advantage of their insider status to gain access to new issues for their own benefit at the expense of public consumers

Not taxable

Mergers, acquisitions, and spin-offs are generally not taxable events because shareholders receive stock These offers may be a mix of stocks and cash payments The cash portion is taxable as a capital gain or loss

Revocable Trust

Most living trusts may be modified or even completely revoked by the grantor As long as the grantor is alive, the trust may be modified as the grantor sees fit Common for the grantor to also be the trustee and the beneficiary

Dow Jones Industrial Average (DIJA)

Most widely cited measure of the market's performance Tracks performance of 30 stocks of large, well-known corporations

Example of total return

Mr. Ross purchased 100 shares of Glengarry Real Estate for $20 a share. After holding the stock for one year, he sold the shares for $21 a share. Ive the year, the company paid a $0.25 quarterly dividend. What is Mr. Ross's total return? .25 x 4 = $1 income Sold stock: 21 -20 =$1 gain $1 income + $1 gain = $2 2 / 20 (cost basis) = 0.1 (10%)

Rules regarding solicited trade

Must be marked as solicited on the trade ticket (order form) Marking a solicited trade as unsolicited is a regulatory violation

SARs information to be collected

Name and address of both sender and recipient The amount of the transfer The name of the recipient's financial institution The account number of the recipient

RMD rule regrind Roth

No RMD rule. Account holders can leave the money in their accounts until they die Roth IRAs are considered a good way to save for retirement for those who are younger and those in lower income tax brackets

Penalties of Coverdell Ed Savings

Nonqualified distribution subject to income tax and 10% penalty for amount that are in excess of principal If a student's account is not depleted by age 30, the funds must be distributed to the individual subject to income tax and a 10% penalty or rolled into an education IRA for another beneficiary

Quotes for OTC stocks and bonds

OTC market is made up of BDs - some acting as market makers (dealers) and some acting as brokers The trading is between these BDs The bid is the highest bid from a market maker, and the ask if the lowest ask from a market maker Customer will sell to the dealer at the bid, or buy from the dealer at the ask

Quote

On a given security consisting of a bid and an ask (offer) Most quotes provide size, which is the number of shares currently available at the bid and at the ask Expressed in round lots (units of 100 shares)

Acquisition

One company takes over the operations and assets of another firm Shareholders of the company that was acquired will receive shares of the company that did the acquiring, and their old shares are canceled

Business Accounts

Opened to hold the assets of a business Owner may be a natural persons or a business entity

Following CANNOT be purchased on margin and CANNOT be used as collateral for a margin

Options (both calls and puts) Rights Non-National Market Securities (NMS) OTC issues not approved by the FRB Insurance contracts

Important on 529

Overall total contributions levels can vary from state to state, there are no annual contribution limits Assets in the account remain under the donor's control, even after the student becomes of legal age No income limitations on making contributions Account balances left unused may be transferred to a related beneficiary No age limit Rollovers are permitted from one state's plan to another state's plan, but no more than once every 12 months

Immediate persons

Parents, in-law, spouses, siblings, children or any other individual to whom the person provides material support Aunts and uncles and grandparents are not considered immediate. But if one of those individuals lives in the same household as a restricted person or provides financial support, that individual would be a restricted person 10% de minimus exemption

Records that are a part of the life of the firm

Partnership agreement Corporate Charter or articles of incorporation Stock certificate books Minutes Amendments Organization records or other records related to the foundations of the firm

Fee-based trading account

Pays a set fee, either monthly or quarterly, for all trading in the account Percentage of the account's value is most common, but the fee may be a set fee for every account Appropriate for customers that trade frequently

Contemporaneous traders

Persons who enter trades at or near the same time (but on the other side of the market) in the same security as a person who has inside information

Three stages of money laundering in order:

Placement Layering Integration

529 Plans

Plans allow money saved to be used for qualified expenses for k-12 and postsecondary education Qualified expenses: tuition up to $10,000 per year Distribution limit does not apply to postsecondary (college or graduate school) costs State sponsored: municipal fund security - sale of these plans must be accompanied or preceded by an official statement or offering circular

Two types of 529 plans

Prepaid tuition plans: allows resident donors to lock in current tuition rates by paying now for future education costs - provides protection against inflation in the costs of education College savings plan: allows donors to save money to be used later for education expenses - purchase units in separate accounts

Office of Foreign Asset Control (OFAC)

Publishes and maintains a list of individuals and companies owned or controlled by, or who are acting for or on behalf of, targeted countries, individuals, groups, or entities that are designed under programs that are not country specific, such as terrorists and those trafficking in narcotics When individuals or groups appear on the Specially Designated Nationals (SDN) list, their assets are blocked, and US persons and businesses are generally prohibited from dealing with or conducting business with them New customers must be advised, before the account is opened, that the firm is requesting information to verify their identities Part of the Treasury Department

Six-year records

Records that deal with the BD's holdings and assets it holds for customers Blotters General ledger Stock record Customer ledgers/customer statements Customer account records Designation of principals

Rehypothecation

Repledges the securities as collateral for a loan from a bank Regulation U oversees the process of a bank lending money to BDs based on customer securities having been pledged as collateral fo the loan

Provide notification of account hold

Required members to provide notification of the hold to the trusted contact person and all parties authorized to transact business in the account, no later than 2 business days after the date the hold was initiated Not required if they are unavailable or believe they are the perpetrator

Limit orders to either buy or sell come with a built-in risk

Risk is that the market may never go as low as the buy limit designated on the order or as high as the sell limit designated on the order

Penalities for insider trading

SEC investigates Civil penalties of up to three times the profits made or losses avoided may be levied Controlling person (BD or RR) could be fined $1 million or three times the profit made or loss avoided, whichever is greater Criminal penalties of up to $5 million and up to 20 years in jail Employee of a BD could be fined up to three times damages of $25 million, whichever is greater

Earned Income

Salary Wages Bonuses Tips Other income that is derived from active participation in a trade or business Eligibility for IRA contributions is based on earned income, not ordinary income

Capital gains formula

Sales proceeds - adjusted cost basis + number = gain - number = loss

Investments and rollovers in Roth

Same as traditional. Only one rollover is allowed per rolling year per person. You cannot do a rollover in a traditional and another in a Roth

Forward uneven split

Same thing but multiply by new ratio numbers

Transfer in Roth

Same traditional, but the transfer from a Roth account must be to a Roth account

Short position

Sell to open Buy to close

Regulation T margin call, how long?

Settlement plus two additional business days

Cash settlement trade

Settles on the trade date (same day) Stocks and bonds sold for cash settlement must be available on the spot for delivery for the buyer Both parties to the transaction would have to agree for cash settlement to occur and before the trade takes place

Settlor vs benficiary

Settlor may appoint a trustee, whose job is to manage the assets for the benefit of a beneficiary Beneficiary is selected by the grantor, and the assets of the trust are to be managed for their benefit

Inappropriate in traditional IRAs

Short sales of stock, speculative option strategies, tax-exempt municipal securities, margin account trading

Unique or nonstandard corporate actions

Tender offer Merger & Acquisition Takeover Spin-offs Buy back Repurchases stock

Coverdell difference from 529

Small contribution limit, limits on a contributor's income

Problematic activities: Red Flags

Suspicious activity involving transfers and disbursements in customer accounts Activity in the account of a deceased person Excessive customer complaints, and Exemption reports showing discrepancies regarding more than one address or a street address not matching a city or a ZIP code provided or a telephone area code not matching an address provided

Latest the payment in full for purchased securities may take place in a cash account:

T+4 business days

Withdrawals in Roth

Tax free. Qualified distribution of income or gains in the account are also tax free Non-qualified distribution of income or gains from the account are taxed as ordinary income and subject to a 10% penalty

Short-term capital gains

Taxed as ordinary income The ordinary income tax rate will exceed the long-term capital gains tax rate

Long-term gains

Taxed differently than a short-term gain Position must be held for more than one year Short term: 12 months (one year) or less

FinCEN

The Financial Crimes Enforcement Network (FinCEN) A bureau of the US Treasury Department that collects and analyzes information about financial transactions to combat money laundering, domestic and international terrorist financing, and other financial crimes

Insider Trading

The Securities Exchange Act of 1934 prohibited the use of insider information in making trades Penalities for insider trading were up to $5,000 The Insider Trading and Securities Fraud Enforcement Act of 1988 amended its provisions and specified significant penalties for insider trading and securities fraud, giving some real teeth to the prohibitions against using insider information

Benefit and contribution for defined contribution plans

The benefit amount is variable The contribution amount is fixed Younger employees benefit: more time for the money to grow

Pump and dump

The act of inflating (pumping) the price of an owned stock by perpetrating false and misleading positive rumors in order to sell the stock at a higher price later The shares owned are first accumulated at lower prices before the misleading information is doled out to the investing public After stock price rises, the operators of the scheme then sell (dump) their overvalued shares in the open market

Adjusted cost basis

The amount paid for position modified by an adjustment The effect of a stock dividend

Cost basis

The amount they paid for the position when they close the position, the money they receive is their sales proceeds

Resolution must contain:

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

Spread

The difference between the bid and the ask prices A market maker is buying at the bid and selling at the ask. Thats how we make money Ask - bid = spread

Bid

The highest amount someone is currently willing to pay for the security The size is the number of shares that someone is willing to buy at the bid The bid price is the price a seller receives if an investor wants to sell

Inside quote

The highest bid (the highest price someone is willing to buy) paired with the lowest offer, or ask (the lowest someone is willing to sell)

Inside bid

The highest bid, or the most someone is will to pay Look at bid, highest one and then multiply by the first number on size for the amount of shares

When opening a custodial account

must ensure the account application contains custodian's: name minor's name and social security number and the state in which the account is registered no documentation of the custodial rights or court certification is required for an individual acting as the custodian for a minor

Tippee

The person who receives the information

Tipper

The person who relays the information

Money Laundering Definition

The process of creating the appearance that money originally obtained from criminal activity, such as drug trafficking or terrorist activity

Settlement

The process that ensures that both parties to a transaction receive what they are supposed to receive: money to the seller and securities to the buyer also ensures that the trade is complete in a timely manner

Safeguard requirements

The regulation embodies the obligation of financial institutions to safeguard customer information as it related to all forms of existing and developing technology Examples are securing desktop and laptop computers and encrypting email

Defined Contribution Plan

These plans define the amount that may be contributed to the plan Employees in these plans will normally have a balance that they may invest in a mix of securities as defined within the plan At retirement, employees may take possession of the assets in their account, often transferring the assets to an IRA for distribution during retirement 401k, 403 (b), profit-sharing plans, money purchase plans, SIMPLE plans

Good Delivery

These rules govern the delivery of physical stock and bond certificates in a trade When a certificate is delivered, it must be endorsed (signed) - by all owners whose name appears on the face of the certificate and - signed exactly as the name appears

Four classes

The transaction involves funds derived from illegal activity Is designed to evade the requirements of the Bank Secrecy Act Appears to serve no business or lawful purpose Involves the use of the firm to facilitate criminal activity

Conduct rules permit five types of lending arrangements

There is an immediate family relationship between the representative and the customer The customer is in the business of lending money (bank) Customer and the representative are both registered persons with the same firm Customer and the rep have a personal relationship outside the broker-customer relationship Customer and the representative have a business relationship outside the broker-customer relationship **Firms have procedures in place, if firm does not allow such arrangements, then a rep may NOT enter into such an agreement

Standard and Poor's (S&P) 500

Tracks more than 500 stocks of large US companies and is the basis for several index mutual funds and ETFs Benchmark used when speaking about overall market performance

Layering

This stage's goal is to conceal the source of the funds or assets Done through a series of layers of transactions that are generally numerous and can vary in form and complexity

Restrictions that can be applied to an order:

Time Restrictions Good 'til canceled (GTC) order Market-at-open- or market-on-close order

Wishire 5000

Tracks over 5,000 stocks, covers al the companies listed on the major stock markets, companies of all sizes

Margin buying

Trading on margin allows customer to increase their trading capital by borrowing either cash or securities through their BDs Long & short *all short sales must be executed through, and accounted for, in a margin account

Issuers are required by the SEC to give notice of corporate actions to shareholders. Includes:

Title of the security Date of declaration Date of record for determining holders entitled to receive the distribution or to participate in the split Date of payment or distribution For cash dividend - amount to be paid For stock dividend - rate of the dividend For a split - rate of the distribution Notice should be given no later than 10 days before the record involved or, in case of a rights subscription or other offering, if giving 10 days advance notice is not practical, on or before the record date and in no event later than the effective date

Russell 2000 Index

Tracks 2,000 small-company stocks and serves as a benchmark for smaller corporations in the overall market

Living trust

Trust is created and funded by the grantor during the grantor's lifetime Much more common than decendent's trusts

Decedent's trust

Trust is funded by a will or some other estate process where the assets are placed in the trust after the owner has passed away

Fiduciaries include:

Trustee designated to administer a trust Executor designated in a dependents will to manage affairs of estate Administrator appointed by the courts to liquidate the estate of a person who died interstate A guardian designed by the courts to handle a minor's affairs until the minor reaches the age of majority or to handle an incompetent person's affairs A custodian for a minor A receiver in a bankruptcy, and A conservator for an incompetent person

Joint Accounts

Two or more adults are named on the account as co-owners, with each allowed some form of control over the account Requires signature of all owners Provide that any or all tenants may transact business in the account Must be designated as either tenants in common (TIC) or joint tenants with right of survivorship (JTWROS)

Merger

Two or more companies combine operations and assets The shareholders of both companies receive new shares of the combined company, and their shares of the old company are canceled

Cash account

the basic type of investment account anyone eligible to open an investment account can open a cash account customer pays in full for any securities purchased Payment is expected by the end of the day on the settlement date corporate and municipal securities - T+2

When to consult the SDN list:

US persons are prohibited from doing business with anyone on the OFAC SDN list and should check if uncertain to avoid breach of law Businesses should conduct checks before establishing a relationship with the person or entity, or conducting transactions with them, and periodically throughout the relationship

Securities exempt from Reg T:

US treasury bills, notes, bonds Government agency issues, and Municipal securities

Suspicious Activities Report (SARs)

USA PATRIOT Act requires firms to report to FinCEN when there is an event, transaction, or series of events or transactions that appear to be questionable

UTMA vs UGMA

UTMA: accounts allow for real estate to be titled in custodian name, UGMA do not UTMA: accounts may be held in custodial name until the beneficiary turns 25; UGMA accounts are available to the minor at age of majority for the state

Regulation SP note

Under Reg SP, a customer has an ongoing relationship If the relationship is one time and limited, they are instead referred to as consumers, not customers, and no annual notification is required

Contributing more to an IRA than legally allowed

the customer will incur a 6% penalty based on the amount of the excess contribution every year until the excess amount is withdrawn

FINRA minimum maintenance equity on a SHORT margin account is

the higher of 30% or $2,000 minimum maintenance requirement is a FINRA rule

Ordinary income

Used to determine the income tax rate than an investor will pay Consists of several different types of income that are added together to determine ordinary income Earned income, investment income, and passive income

Buyback

When a company buys its own outstanding shares in the open market from existing shareholders Reduces a company's number of shares available (supply) and therefore can increase the value of shares still available Normally cash offers

Good 'til canceled (GTC)

Valid until executed or canceled All GTC orders are automatically canceled if unexecuted on the last business day of April and the last business day of October If a customer wishes to have the order remain working beyond those specific days, the customer must request that the order continue for the next cycle

To understand a customer's attitude about investment alternatives, the representative or advisor should ask:

What kind of risks can you afford to take? How liquid must your investment be? How important are tax considerations? Are you seeking long-term or short-term investment? What is your investment experience? What types of investments do you currently hold?

Four-year records

Written complaints must be retained for four years after resolution Maintained at the office of supervisory jurisdiction for the office where the complaint originated Only written complaints have regulatory standing, verbal has other procedures

Irrevocable trust

When a grantor forms a trust that cannot be modified Assets placed here may be removed from the grantor's estate Grantor gives up control of the assets

Investment recommednation

When an RR provides information that a reasonable person would view as suggesting a course of action regarding a security, class of investment, or an investment strategy, that person is making a recommendation

Option trades

When an option trades, settlement is next business day (T+1) Equity option exercise: T+2 Index option: T+1 - no underlying security to deliver Purchase of an equity option settles T+1, the exercise option settles T+2

Limit order

buy or sell the limit price is the maximum purchase price if buying, or the minimum selling price if selling can only be executed at the limit price designated by the customer or better

Delivery of physical certificates and electronic holdings

When securities are issued with physical paper certificates (bonds or shares), it is those certificates that would be required for physical delivery most securities are sold without a physical certificate evidence of ownership is kept on record at a central agency

Freeriding

When securities are purchased and then sold before making payment for the purchase Prohibited in cash and margin accounts Account will be frozen for 90 days, and no new transactions can occur unless there is cash or marginable securities in the account before the purchase is made

Market Order

buy or sell, it is executed immediately at the best available market price Subject to market liquidity

Penalty in Traditional IRA

Withdrawals before age 59.5 are subject to a 10% penalty, as well as regular income tax Exceptions to penalty (not taxes though) - death of the owner - disability of the owner - first time homebuyer for purchase of a principal residence (up to $10,000) - education expenses for the taxpayer, spouse, child or grandchild - medical premiums for unemployed individuals, and - medical expenses in excess of defined adjusted gross income (AGI) limits

Capital gains example

Your customer purchased 100 shares of ABC corporation for $22 a share three years ago. Last week they sold the 100 shares for $25 a share Sales proceeds (2,500) - cost basis (2,200) = $300 gain

Holding customer mail and statement frequency

Your firm is permitted to hold mail for a customer provided that: the member firm receives written instructions that include the time period the request is being made for up to 3 months The member firm informs the customer of any alternate methods the customer may use to receive or monitor account activity, such as email or through the member firm's website, and The members firm verifies at reasonable intervals that the customer's instructions still apply

Formula for total return

[Income received + gains (or losses)] / cost basis = total return

Uncovered short

a BD that executes a short sale before locating the shares is in violation of the regulation SHO

Transfer in traditional IRA

a customer may transfer IRA assets from one IRA account to another IRA account - also called custodian-to-custodian transfer no limit to the number of times a customer may do a transfer Direct rollover: moving money from an employer plan (401K) to an IRA - a transfer, not rollover!1

A bond purchased at a discount will have a current yield

above the coupon rate

Traditional IRAs contributions

an eligible individual may make contributions up to a maximum dollar amount, provided that the contribution does not exceed earned income for the year The dollar cap is increased by a catch-up amount for individuals age 50 or older Currently catch up = $1,000

Roth IRAs contributions

an eligible individual may make contributions up to a maximum dollar amount, provided that the contribution does not exceed earned income for the year Roth and Traditional have a combined limit. Customer cannot contribute the maximum in both types Contributions must come from earned income

Irrevocable life insurance

an estate planning strategy that is often used to help pay estate taxes when an estate holds a large illiquid asset such as family business

Once established, the firm must provide with an updated version of this notice..

annually!

Insider

any person who has access to material nonpublic information about a company material information is information that would most likely influence the price of the company's stock utilizing that information for the purpose of gain, or to avoid loss, constitutes insider trading

For a sell limit order, or better means

at the limit price or higher

For a buy limit order, or better means

at the limit price per or lower

A bond purchased at a premium, will have a current yield

below the coupon rate

Withdrawals from traditional IRA

distributions may begin without penalty after age 59.5 and are generally added to ordinary income for tax purposes

Reasonable opt out means providing customers with a form with

check-off boxes, along with prepaid return envelope Providing an electronic means to opt out of customers who have agreed to the electronic delivery of information Providing a toll-free telephone number **Writing a letter is not substantial means of opting out under Regulation SP

In order for a discretionary trade to be properly entered, the

client must agree, in writing, to grant a representative discretionary trading authority, AND a principal of the firm must, in writing, approve of the trading authority A client who wishes to revoke must do so in writing Discretion is granted to the representative, NOT the BD. IF the rep dies or leave the firm, the authority ends

Marking the close

entering trades at or near the close of the trading day or falsely reporting trades that never occurred to influence the closing price of a stock

Excessive trading (churning)

excessive trading in a customer's account to generate commissions rather than to help achieve the customer's stated investment objectives is an abuse of fiduciary responsibility known as churning Signs: excessive frequency or excessive size of transactions not in keeping with the client's trading history or financial ability

CTRs failing to report suspicious activity will result in

fines up to $500,000, 10 years in prison, or both Report must be filed within 15 days of receipt of the currency

Account statements

give customers a general accounting of securities and cash held in the account Statement shows: all activity in the account since previous statement Securities positions, long or short, and account balances, debit or credit Must also include a statement advising customers to promptly report any discrepancy or inaccuracy to their brokerage firms and clearing firms

If a chart follows, calculate inside quote

highest bid - lowest ask

Durable power of attorney

if a POA has the language that allows the power to continue if the owner is incapacitated in which POA ends with the incapacity of the grantor of the power (the account owner)

Integraiton

illegal funds are commingled with legitimate funds in what appear to be viable legitimate business concerns Can be accomplished by using front companies operating on a cash basis, import and export companies, and many other types of businesses At this point, the funds make their way back to the criminals in a way that appears to be a legitimate source of income

Fill-or-kill (FOK)

instruction to fill (execute in its entirety) the order immediately or kill (cancel) the order completely Cannot be partial execution, must be filled immediately or canceled

Even split

investor will always be given a certain number of shares for each share owned: 2 for 1, or 3 for 1

Advantages of margin accounts for BDs are

margin account loans generate interest income for the firm, and margin customer typically trade larger positions because of increasing trading capital, generating higher commissions for the firm

Capital losses

may be used to offset capital gains on a dollar-for-dollar basis If an investor has losses that exceed gains in a given year, she may use up to $3,000 of those losses to reduce ordinary income If an investor still has losses more than gains and the $3,000, she may carry those losses into the next year Called carry forward losses, and they may be carried forward until used with no time limit (indefinitely)

To open a fiduciary account:

may require a court certification of the individual's appointment and authority

All-or-none (AON)

must be executed in their entirely or not at all Can be day orders or GTC orders Do not have to be filled immediately, they canoe held until the end of the day or beyond until they can be filled in their entirety

If the customer does not return the proxy by the 10th day before the annual shareholder meeting,

the member may vote the shares as it sees fit as long as the matters to be voted on are of minor importance Proxy is not returned = the shares are not voted

Bearish

sell to close if owns a current position sell to open if holds no position bearish when selling to open a position (selling short)

Short

selling a security one does not own Taking the view that the stock will decline in price, enabling the customer to buy the shares back later at a lower price buying back the shares enables the investor to return them to the party they are initially borrowed from Bearish

Custodian may also use the property in the account in any way deemed proper for the minor's

support, education, maintenance, general use, or benefit Account is NOT used to pay expenses associated with raising a child

Act requires firms to report to FinCEN of any transactions

that alone or in the aggregate involves at least $5,000 in funds or other assets if the firm suspects that it falls within one of the following four classes

If payment cannot be made (by end of day) for a maintenance call,

the BD may liquidate assets from the account to bring the account's equity up to the 25%

Front Running

the act of placing orders for one's own account ahead of other orders that are known to be entering the market in an attempt to gain from the price movement that is likely to occur Ex. A mutual fund company enters an order to purchase 300,000 shares of ABC stock with your firm for execution at the market. Before entering the order to be executed in the open market, an RR places an order for his own personal account to buy 500 shares

Firewall (information barrier)

the barrier against the free flow of sensitive information between a firm's department

If a customer signs and returns a proxy statement and fails to indicate how the shares are to be voted,

the member must vote the shares as recommended by the issuer's management

Hypothecation

the pledging of customer securities as collateral for margin loans BD will not use its own cash to lend for margin purchases; BD borrows the money from the bank Loan from the bank to the broker for this purpose is also secured by a portion of the stocks purchased on margin Firms can commingle one customer's securities with another customer's securities for hypothecation if customers have given signed permission - firm can never commingle customer securities with securities owned by the firm

Risk of long position

the price of the security falls, max loss for the investor occurs if the security becomes worthless

Uneven split

the split can be designated in any ration: 3 for 2, or 5 for 4

Proxy is automatically revoked if

the stockholder attends the shareholder meeting or if the proxy is replaced by another proxy that the shareholder executes at a later date

Financial Exploitation to be

the wrongful or unauthorized taking, withholding, appropriation, or use of funds or securities, or any act of omission of an act taken by a person to obtain control, through deception, intimidation, or undue influence, over the specified adult's money, assets, or property, or convert the specified adult's money, assets, or property

At the time of the split

there are no tax implications. The cost per basis per share will change, and this may have an effect when the shares are sold, but not until then NO TAX IMPLICATIONS AT THE TIME OF THE SPLIT

Required minimum distributions (RMDs) in traditional IRA

these distributions are required beginning in the year the account owner turns 72 and annually by December 31 thereafter Amount is based on the account values as of the end of the previous year If an investor has more than one account that requires RMDs, the total of all the accounts is used to determine the amount - account holder may choose which account (or accounts) to take the distribution from the first RMD may be delayed to April 1 of the year after the account holder turns 72. If delayed, there will need to be a second distribution in that year by December 31

Reasonable efforts means

they asked the customer to provide the name and contact information for a trusted contact person member firm is not prohibited from opening an account when the customer fails or refuses to provide the information, they at least tried

Rollover in traditional

when a customer withdraws and takes possession of IRA assets and then returns the assets back to an IRA within 60 calendars days As long as the customer successfully completes the rollover, there are no tax implications for the withdrawal Allowed one rollover per year Rollovers have a time limit of 60 calendar days, not 2 months

Street name

when a security is held in electric form by a broker-dealer on behalf of a customer no physical certificate and no requirement for physical signatures for good delivery when a position is held in street name

Buying and selling long: Long position

when an investor buys a security, he has taken a long position in that security He now owns the security and hopes that the security will rise in value, and he will be able to sell it later for profit Bullish position

Locate requirement

when an investor wants to enter a short sale, the broker-dealer taking the trade must first locate the shares that will be borrowed for the short sale Does not matter where the shares are borrowed from, they just must be located and secured before a short sale may be executed