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What is a reverse convertible security?
Bond that can be converted at the discretion of the ISSUER. Will have shorter terms of maturity and higher yields b/c of risk involved for investors.
FINRA: Retail Communication
Any written or electronic communication that is distributed or made available to more than 25 retail investors within a 30 calendar-day period
What is a discount bond priced to?
Priced to matuity
What is TIPS?
TIPS - treasury inflation protected securities
What is the Federal Farm Credit System composed of?
The Federal Farm Credit System is composed of the
What would be the yields between a bond paying interest annually vs. semiannually?
The bond paying interest annually will have a yield to maturity that is less than the bond paying interest semiannually. Yields to maturity assume a reinvestment and compounding of interest. The compounding of interest will be greater for the bond paying semiannual interest.
What are exchange-trade notes (ETNs)? Can it be purchased on margin or sold short?
Type of unsecured debt security that has risked tied to the creditworthiness of the financial institution backing the note.
What is a fill or kill order?
When bonds are offered firm for one hour with a five-minute recall, the offering Dealer A cannot sell the bonds to anyone but Dealer B without giving Dealer B the first opportunity to take the bonds. When Dealer A called Dealer B and said, fill or kill, Dealer A was invoking the five minute recall. Dealer B would now have five-minutes to take the bonds or else Dealer A would be free to sell the bonds to someone else.
Can a broker-dealer be compensated for retired RRs for sales made prior to retirement?
Yes, if they have a contract is signed by the retired RR for continued commissions, or trails. Can also make payments to the RR's widow or beneficiary for existing business, not new ones.
How do you find the true muni bond yield (7%) if corproate rate is 35% and state rate is 7%?
7% / (1-42%)
1 Mil
$.001
If I place an order to buy 1,000 shares of XYZ at $30 and XYZ declares a 50% stock dividend, what happens?
1,500 shares (to reflect dividend) at $20
What are the rules of the FINRA suitability obligations?
1. The reasonable-basis obligation requires a member firm and an RR to have a reasonable basis to believe that the recommendation is suitable for at least some investors. If the firm or its RRs do not understand the product, it should not be recommended to customers.
1/2 point equivalent?
1/2 of 1% on $1000 par value
7.00 basis
7% (basis = yield)
What are the three basic types of funds?
A "closed-end fund," legally known as a "closed-end company," is one of three basic types of investment company. The two other basic types of investment companies are mutual funds and unit investments trusts (UITs).
What is a BDC?
A business development company (BDC) raises capital by selling securities to investors and is similar in structure to a closed-end investment company.
What are capital appreciation bonds?
A capital appreciation bond (CAB) has a similar structure to a zero-coupon bond. CABs do not pay periodic interest and are NOT suitable for investors who seek income.
What is a certificate of participation?
A certificate of participation (COP) is a revenue bond backed by a lease payment that does not require voter approval.
What is a repo?
A form of short-term borrowing (capital) for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day.
What bonds require voter approval?
A general obligation bond would require voter approval since it is backed by the full faith and credit of the issuing municipality. A bond backed by ad valorem or real estate taxes is a type of general obligation bond.
What is a mortgage bond?
A mortgage bond is a type of corporate bond. A bond secured by a mortgage on one or more assets. These bonds are typically backed by real estate holdings and/or real property such as equipment. In a default situation, mortgage bondholders have a claim to the underlying property and could sell it off to compensate for the default. Have lower yield.
What is bond power?
A separate legal form that authorizes the transfer of ownership of a registered bond from one party to another. The bond power is essentially a substitute for the assignment on the back of the bond. It formally appoints an attorney-in-fact to transfer the ownership of the bonds.
What is a special tax bond?
A special tax bond is financed by a tax other than an ad valorem tax, such as a tax on cigarettes, liquor, or gasoline, and would not require voter approval. A special tax bond is a type of revenue bond that is backed only by a specific tax source, such as an excise tax.
What are S&P's rating for bonds? Best and worst rating for munis?
AAA, SP-1 (best) and SP-3 (worst)
What is a unit investment trust?
An investment company that offers a fixed, unmanaged portfolio, generally of stocks and bonds, as redeemable "units" to investors for a specific period of time. It is designed to provide capital appreciation and/or dividend income.
FINRA: Institutional communication
Any written or electronic communication that is distributed or made available ONLY TO INSTITUTIONAL INVESTORS.This would not include any internal communication by the broker-dealer. This would not include any internal communication by the broker-dealer.
What is the Bond Buyer 25RB index?
Average yield on 25 revenue bonds with 30-year manturities
What is a straddle?
Buying a put and call with the same strike price and maturity - expect volatility
Can you purchase securities prior to registration? Settlement?
Cannot purchase securities prior to registration (against Securities Act of 1933), but can purchase prior to settlement (when-issued)
List order of highest yield: corporate, muni (G.O), muni (Rev.), Treasury
Corporate, Treasury, Muni (Rev.), Muni(G.O.) (lowest yield b/c exempt from federal income tax)
FINRA: Correspondence
Correspondence, which is defined as any written or electronic communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period.
Who else uses an arbitration panel?
Decisions of a Hearing Panel regarding complaints can be appealed to the National Adjudicatory Council.
Who is a restricted person for a IPO?
FINRA Rule 2790 defines a restricted person as any FINRA member firm, a broker-dealer and its employees, finders or fiduciaries (i.e. attorneys and accountants) of the managing underwriter, or immediate family members of any of those persons. New issues may not be sold into an account in which a restricted person has ownership.
When should you invest in a variable annuity?
Generally, an annuity should only be considered after a person contributes the maximum amount to the qualified plans that is sponsored by his employer since it provides for deductible contributions, tax-deferred growth, and the potential for a company match.
How are government bonds taxed? How are munis taxed?
Government bonds taxed only federally; munis only taxed at state / local level
What is the 11-bond index?
The 11-Bond Index contains general obligation bonds with an average rating on S&P of AA+ and on Moody's of Aa1. Includes the average yield on 11 muni G.O bonds with 20-year maturities
What is the 20-bond index?
The 20-Bond Index has an average rating on S&P of AA and on Moody's of Aa2. Includes the average yield on 20 muni G.O bonds with 20-year maturities
What is the 30-day visible supply of muni bonds?
The 30-Day Visible Supply is all municipal bonds that are expected to be brought to market in the next 30 days. It is computed daily and includes all competitive and negotiated offerings of G.O bonds that are anticipated to be brought to market. However, it does not include short-term notes or auction rate securities. It is an indication of expected supply in the new issue market and is published each day in The Bond Buyer.
What is a issuer-directed security?
ISSUER-DIRECTED SECURITY: Provide an exemption for certain individuals under the New Issue Rule to participate in an IPO. Under this provision, issuers may direct securities to the parent company of the issuer, the subsidiary of an issuer, and employees and directors of an issuer. The issuer-directed provision also permits immediate family members of employees and directors to participate in the offering. Registered representatives are also allowed to purchase shares of an equity IPO if the issuer is that person's employing broker-dealer or is the parent or subsidiary of the broker-dealer.
What happens if FRB increases discount rate?
If the FRB increases the discount rate, the general level of interest rates increases. The prices of long-term bonds decreases more in price than the price of short-term bonds (duration risk).
What must mutual funds do to charge the maximum 8.5% sales charge?
In order to charge the maximum 8.5% sales charge, mutual funds must offer breakpoints and rights of accumulation.
What is a inverse ETN?
Inverse ETN would pay the opposite of the benchmark that is being tracked and would be suitable for a person interested in short-term trading
What are joint accounts for?
Joint accounts are for individuals; a custodian account is not considered a joint account
What is difference b/w long-term and short-term gain?
Long-term gain - security held for >1 year (taxed at capital gains - 20%); short-term gain - security held for <1 year (taxed at ordinary income)
What is a money-market fund?
Money-market funds (SHORT-TERM DEBT) are normally no-load, open-end investment companies. Their portfolio consists of short-term, fixed-income securities such as Treasury bills, commercial paper, and bankers' acceptances, muni notes.
What happens if a state resident earns interest on bond from within state? How about out of state?
Most states also exempt interest from bonds issued within their state from a resident's state and local income taxes. However, if a state resident earns interest from an out-of-state municipal security, that interest is usually subject to state and local taxation.
How about correspondence?
Retail communications need to be approved by a registered principal prior to first use IF IT MAKES A RECOMMENDATION OR PROMOTES A PRODUCT OR SERVICE (correspondence falls under same as retail)
What is a second mortgage bond?
Second mortgage bond: A type of subordinate mortgage made while an original mortgage is still in effect. In the event of default, the original mortgage would receive all proceeds from the liquidation of the property until it is all paid off. Since the second mortgage would receive repayments only when the first mortgage has been paid off, the interest rate charged for the second mortgage tends to be higher and the amount borrowed will be lower than for the first mortgage.
What back subordinated / unsecured bonds?
Secured only by the full faith and credit and no specific collateral
What happens when FOMC sells treasuries? What happens when FOMC purchases treasuries?
Securities used are Treasury bills. FOMC wants to influence money supply.
What is a short straddle (writing a straddle)?
Selling a put and call with the same strike price and maturity - expect neutral / stable market
FINRA: Public appearances
Situations where employees associated with a broker-dealer or sponsor participate in a television or radio interview, seminar, or forum, or make a public appearance, or engage in speaking activities that are unscripted and are not otherwise considered retail communication. Social media sites, which permit real-time communication or interactive, electronic forums, fall under the guidelines of a public appearance (e.g., Facebook, Twitter, and LinkedIn).
What is the Bond Buyer Muni Bond Index?
The Bond Buyer Municipal Bond Index is based on the prices of 40 recently issued, long-term general obligation and revenue bonds. The index is calculated by taking the price estimates and adjusting them to a 6.00% coupon. The Municipal Bond index is published daily and serves as the basis for a futures contract (which is no longer traded).
Fed Funds, Reserve Requirement , Reg T and Fed Funds rate: which does the Fed NOT control?
The fed funds rate is the rate charged by one bank with excess reserves (which are held at the Fed) to another bank needing overnight loans to meet reserve requirements.
What is the placement ratio?
The placement ratio is published weekly by The Bond Buyer. It expresses the amount of bonds sold by new issue syndicates as a percentage of the total amount of new issues brought to market during that week.
