Series 7

7.00 basis

7% (basis = yield)

What is the max sales charge for mutual funds?

8.5%

What is the Bond Buyer 25RB index?

Average yield on 25 revenue bonds with 30-year manturities

Can preferred shares participate in a rights offering?

NO!

Who is the person who organizes and registers a a partnership?

Syndicator

How do Treasury's settle?

T+1

What is free-riding?

"In a cash account, you must pay for the purchase of a stock before you can sell it. If you buy and sell a stock before paying for it, you are free riding, which violates the credit extension provisions of the Federal Reserve Board. If you free ride, your broker must freeze your account for 90 days." Cannot free-ride in a margin account by liquidate stock position and using the sale of proceeds to pay for margin requirement.

What does "qualified annnuity" mean in terms of the IRS?

"Qualified" is a descriptor given by the Internal Revenue Service (IRS) to indicate that the qualified annuity may be eligible for tax deduction. When a distribution is made, it is subject to income tax.

1 Mil

$.001

What is a non-dilutive feature?

$1000 dollars converts at $25, then stock split / dividend of 10% A nondilutive feature requires that the conversion features be adjusted should there be a stock split or stock dividend. The conversion ratio will be increased and the conversion price will be reduced - YOU GET MORE SHARES BASICALLY. The new conversion ratio will be 44 [the old ratio (40) plus the old ratio times the percentage dividend (40 x 10% = 4)]. The new conversion price will be the par value of the bond divided by the new conversion ratio ($1,000 divided by 44 equals $22.73).

A municipality is issuing 50,000 bonds at a public offerings price of $1,000. The manager of the underwriting syndicate receives $1.25 per bond. The total takedown is $8.75 per bond and the selling concession is $5.00 per bond. What amount will the issuer receive?

$990 per $1000

WHat is regulation NMS?

'Regulation NMS' National Market System (NMS) is a set of rules passed by the Securities and Exchange Commission (SEC), which looks to improve the U.S. exchanges through improved fairness in ELECTRONIC price execution as well as improve the displaying of quotes and amount and access to market data. Among other rules, Regulation NMS prohibits a trade-through of a protected quote. A protected quote is the highest bid and lowest offer (the inside market) in a market center that allows electronic executions. A trade-through occurs when there is an execution of a buy order at a price above the lowest ask price, or an execution of a sell order below the highest bid. For example, assume the same security is quoted on two market centers (NYSE and Nasdaq). If the NYSE has an ask price of $23.50 and Nasdaq has an ask price $23.60, it is a violation to execute an electronic buy order at $23.60 when there is a better or lower price of $23.50. The other choices are not prohibited. If a broker-dealer sells a security to a customer from its own inventory, it is acting as a principal. Trading exchange-listed securities over-the-counter is allowed and is referred to as a third-market trade.

What is the quick asset ratio?

(Current Assets - Inventory) / Current Liability

What must underwriters do under MSRB rules for new muni issues? What else does EMMA do?

(EMMA) system as the primary market disclosure service for official statements, other related primary market documents, and information. Investors can also access the official statement through EMMA.

What is current (Dividend) yield of a stock?

(Only for dividend-yielding stock) Current yield = annual dividend / stock market price

What kind of bond needs shareholder approval?

G.O bonds must get voter approval, but debt can only go up to a statutory limiit

What are the minimum maintenance requirements (required equity) for a stock sold short in a margin account that is a low-priced security?

1 cent - $2.50 = $2.50 per share 2.50 - $5.00 = 100% of market value $5+ = greater of 30% of market value or $5

What is 1 mil?

1 mil = .001 So if you have 10 mil tax

What is 1 points = %? If something increased by 20 points, how much percentage is that?

1 point = 1% 20%

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 Total value before must equal value after the dividend

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. 2. The customer-specific obligation requires the member firm and an RR to have a reasonable basis to believe that the recommendation is suitable for a particular customer based on that customer's investment profile. A customer's investment profile would include, but is not limited to, the customer's age, other investments, financial situation and needs, tax status, investment objectives and experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose. Even though a customer is not obligated to provide all of this information, the RR should try to obtain the information necessary to make a suitable recommendation. 3. The quantitative obligation requires the member firm and an RR to have a reasonable basis for believing that a series of recommended transactions, even if suitable for a customer, are not excessive when taken together in light of the customer's investment profile.

1/2 point equivalent?

1/2 of 1% on $1000 par value

What happens when you receive cash dividends on stocks, interest on bond, and voluntary cash deposts made by customer? How about liquidating stocks?

100% are used to reduce debit balance and SMA is increased by 100% 100% are used to reduce debit balance and SMA is increased by 50%

What happens if OID is called at 102, what do you get?

102 of accreted value

What does 10Ms mean?

10M equals 10,000 par value bonds

How much can you give as a gift as a single person or married couple before it gets taxed? How about gift to your spouse?

14k for single, 28k for married To your spouse is unlimited

What is initial equity minimum for writing uncovered options?

2000

What is the minimum maintenance requirement for combined accounts?

25% of the CMV + 30% of the SMV

When does 401k get drawn into the taxable income?

401(k) contributions are made on a pretax basis and are not included in taxable income until the taxpayer begins taking distributions.

In margin account with 30k market value, 10k debit, 20k equity, SMA 5k? What happens is you use SMA to buy 10k more in stock?

40k cmv, 20k debit (10k + 2 x SMA), 20k equity, 0 SMA

If you open account and short sell: 500 ABC @ 1 1000 ABC @ 1 what is your minimum equity requirement (deposit)?

500 * 2.50 + 1000 * 2.50 = 3750

If investor contributes a 50k recourse loan to the partnership and he invested 30k before, what is his basis? What happens to loan in bankruptcy?

50k + 30k = 80k LOAN - become general creditor to partnership

How do you find the true muni bond yield (7%) if corproate rate is 35% and state rate is 7%?

7% / (1-42%)

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). Any closed-end fund that is issued by an investment company is considered a debt obligation of that investment company, not the issuer of the bonds it holds.

Can FINRA member firm sell fund at a discount?

A FINRA member firm may not sell the fund at a discount to a nonmember firm or to one of the firm's customers (the public). According to the Conduct Rules, a member firm can only give a discount from the public offering price to another member firm.

What is a Health Savings Account?

A Health Savings Account (HSA) is a tax-advantaged account that can be used by individuals to pay for qualified medical expenses. An HSA is not open to all individuals. It is generally open only to persons who are NOT ENROLLED in any type of health plan other than a qualified, high-deductible health plan. Contributions are made in PRETAX dollars (which are limited under IRS guidelines), GROW TAX-FREE, and withdrawals are tax-free if used to pay qualified medical expenses. The funds may be invested in mutual funds, although the types of funds may be limited by an HSA trustee (a financial institution). The funds do not need to be used each year and may be carried over to be used in the future. Once you reach age 65, your funds can be withdrawn at any time and are subject only to ordinary income tax. (You avoid the 20% IRS penalty.) However, you may avoid any tax by continuing to use the funds for qualified medical expenses.

What is a Keogh plan? What kind of jobs do you have to do to be able to set one up?

A Keogh plan allows a maximum annual contribution of 100% of compensation or $53,000, whichever is LESS. (For 2014, the limit was $52,000.) This question is asking the amount deductible. The amount deductible is limited to the LESSER of 20% of compensation or $53,000 (also $52,000 for 2014). An individual with self-employed income may establish a Keogh. Of the choices given, a doctor may participate because he is self-employed. The security analyst and the engineer could set up a plan for the income they derive from outside, self-employed activities.

What is a LEAP?

A LEAP is a long-term option that can have an expiration of up to 39 months. If option is held for >12 months, then gain or loss is long-term (@ capital gains) Long-term anticipation securities (LEAPS) may be exercised on any day prior to expiration (American style). Exercise settlement is in the underlying stock, in three business days.

A REIT is NOT used for a tax shelter because? Different than partnership?

A REIT allows the flow-through of income, but not losses. Shareholders have limited liability. While a REIT is similar in structure to a mutual fund, it is not defined as an investment company. Also, while it may invest in real estate properties, it is not considered to be a limited partnership. Partnerships can pass through losses.

What is a section 457 plan? What is the maximum contribution?

A Section 457 plan is a type of qualified retirement plan used by many public sector workers (local and state NOT federal) 457 plans grow on a tax-deferred basis and are generally subject to the SAME CONTRIBUTION LIMITS as 401(k) and 403(b) plans. Each has similar tax features and contribution allowances The difference between the plans is the type of employee who may use them. A 401(k) plan is used primarily by for-profit employees, a 403(b) plan by nonprofit employees / public education, and a 457 plan by some local government workers Contribute 18k total per year, and then 6k more after 50

What are VRDO and ARS and TANs and BANs?

A VRDO and an ARS are both long-term securities with short-term trading features. A VRDO (MUNI SECURITY) has a put feature that permits the holder to sell the securities back to the issuer or third party. VRDOs are variable-rate demand obligations that are a type of municipal security structured for tax-free money-market and high-net-worth investors. A variable-rate demand obligation (VRDO) can be redeemed prior to maturity on any date the interest rate on the obligation is reset. Rates can be reset on a monthly, weekly, or daily basis. The obligation will be redeemed at par value plus accrued interest. An auction rate security (ARS - LONG TERM INVESTMENTS) does not have this feature and, if the auction fails, the investor may not have immediate access to his funds. A failed auction occurs when there are not enough bids to cover the amount of auction rate securities being sold. In this situation, the holders will continue to hold the securities and the interest rate will be set to the maximum rate allowed in the program documents. This rate is normally higher than the rate that would have cleared a successful auction. In addition, ARSs use a DUTCH AUCTION process to reset the interest rate on the securities (SET AT LOWEST RATE THAT MATCHES SUPPLY AND DEMAND), whereas the interest rate on a VRDO is reset by the dealer at a rate that allows the securities to be sold at par value. (often issued by munis) TANs (tax anticipation notes) and BANs (Bond anticipation note) are short-term municipal notes and, if their maturities extend four months, these securities can easily be sold in the secondary market - MONEY MARKET ACCOUNTS

When does a bond counsel issue an unqualified legal opinion?

A bond counsel renders an unqualified legal opinion if there are no situations in existence that could adversely affect the legality of the issue (no lawsuits, limitations that hinder the issuance of the bond)

What is a Yankee bond?

A bond denominated in U.S. dollars that is publicly issued in the U.S. by foreign banks and corporations. According to the Securities Act of 1933, these bonds must first be registered with the Securities and Exchange Commission (SEC) before they can be sold. Yankee bonds are often issued in tranches and each offering can be as large as $1 billion. Due to the stringent regulations and standards that must be adhered to, it may take up to 14 weeks (or 3.5 months) for a Yankee bond to be offered to the public. Part of the process involves having debt-rating agencies evaluate the credit worthiness of the Yankee bond's underlying issuer. Foreign issuers tend to prefer issuing Yankee bonds when U.S. interest rates are low because this means lower interest payments for the foreign issuer.

what is a super sinker bond?

A bond with long-term coupons but a potentially short maturity. A super sinker fund is most likely to be used in home financing, where there is a greater risk of bond prepayment. If the bond principal is paid before maturity - prepaid - bondholders receive the value of the principal back quickly. Super sinker bonds attract investors who want a brief maturity but also want longer-term interest rates.

When does broker-dealer act like a principal?

A broker-dealer is acting as a principal when buying for or selling from inventory. In choice (IV), the broker-dealer is buying 500 bonds to fill an order for 250 bonds. The remaining 250 bonds will be for inventory.

Can a broker-delar pay a fee to a registered represenative?

A broker-dealer is permitted to pay a fee to a registered representative, provided this person is also registered as an investment adviser representative.

Can a broker dealer hold mail for a customer?

A broker-dealer may hold mail for a customer who will not be receiving mail at his usual address provided the firm receives written instructions from the customer that include the time-period during which the mail is to be held. If the period exceeds three consecutive months, the customer's instructions must also include a valid reason for the request.

What happens when customer's fail to deliver on their orders?

A brokerage firm must "BUY IN" securities within 1- business days from settlement if a customer has failed to deliver securities that were sold. Conversely, if a customer does not pay for the securities being purchased, the position will eventually be "SOLD OUT"

A broker-dealer sending details of a trade to another broker-dealer would expect to receive either:

A confirmation (confirm trade) or Don't Know (DK) notice (broker disagrees or no knowledge of trade)

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. A BDC will use the money it raises to invest in private companies, small and developing businesses, and financially troubled companies that have difficulty raising capital in public markets. The objective is to help these companies by providing funding when they may not be able to raise capital for themselves. Most BDCs trade on an exchange and, therefore, provide an investor with liquidity and, since they are structured as regulated investment companies, they are not taxed if they distribute at least 90% of their income to investors. For tax purposes, they are regulated similar to investment companies (mutual funds and closed-end funds) and to REITs that also must distribute a minimum of 90% of their income. Most have an investment objective of providing current income and capital appreciation, and will invest their funds in both debt (e.g., loans, subordinated and mezzanine financing) and equity of private small and middle-market companies. Since some of the funds are invested in the equity of nonpublic companies, a customer purchase of a BDC is similar to buying a publicly traded investment in a private equity firm.

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.

When is a client entitled to reduced sales charge (breakpoint)?

A client is entitled to a reduced sales charge (breakpoint) based up the value of the accounts of other family members WITHIN THE SAME FUND FAMILY. Examples include joint accounts, minors' accounts, and certain retirement accounts. The accounts can be held at multiple broker-dealers. A sales breakpoint of a mutual fund is the MINIMUM DOLLAR amount (not the share amount) of a purchase of a mutual fund where a volume discount is given. The percentage of the sales charge declines when certain minimum dollar amounts are reached

What is a CDO?

A collateralized debt obligation (CDO) is a type of asset-backed security. A CDO is issued as a bond, which is backed (collateralized) by a pool of bonds, loans, and various other assets. Ownership of this type of security is typically in the form of a tranche (slice), with any given tranche from the CDO carrying a different maturity and risk level. The return an investor can expect from this type of investment is based on the credit quality of the underlying assets contained in the pool. CDOs are similar in structure to collateralized mortgage obligations (CMOs). These investment vehicles are broadly categorized as asset-backed securities.

What happens when a company fails to meet the maintenance requirement? Are quotes firm or nominal?

A company that fails to meet the maintenance requirements of securities listed on the NYSE or Nasdaq will become delisted. When this occurs, the company may be quoted (but not listed) on the OTC Bulletin Board or in the OTC Pink Market (also called the Pink Sheets). Quotes on the OTCBB or the electronic Pink Sheets generally are firm quotes.

What is pegging?

A practice of an investor buying large amounts of an underlying commodity or security close to the expiry date of a derivative held by the investor. This is done to encourage a favorable move in market price.

How do you diversify corporate bonds?

A corporate bond portfolio may be diversified with different issuers, coupons, maturities, and geographic locations. The price of the bonds does not help to diversify.

If a Company wants to open a margin account, other than a hypothecation agreement, what does it need?

A corporate charter - A written document filed with a U.S. state by the founders of a corporation detailing the major components of a company such as its objectives, its structure and its planned operations. If the charter is approved by the state government, the company becomes a legal corporation.

What is needed for a corporate to open a cash account?

A corporate resolution authorizing a person to trade for the account is necessary to open a corporate cash account. A corporate resolution is a corporate action, sometimes in the form of a legal document, that will be voted on or has been voted on at a meeting of the board of directors for a corporation.

What are corporate retirement plans like?

A corporate retirement plan may be established as either a defined benefit or a defined contribution plan. A defined benefit plan is designed to provide employees with a fixed monthly stipend at retirement. This is generally a percentage of the employee's salary, the exact amount of which is determined by the employee's age and years of service (or some other combo of factors). Defined contribution plans (IRA and 401k) - type of retirement plan in which the employer, employee or both make contributions on a regular basis Defined benefit plan identifies the specific benefit that will be payable to you at retirement. Your basic retirement benefit is usually based on a formula that takes into account factors like the number of years a participant works for the employer (years of service) and the participant's salary. Your retirement benefit is generally provided in the form of regular payments over your lifetime beginning at what the plan calls "normal retirement age," which is typically age 65. This stream of periodic payments is generally known as a pension or sometimes called an annuity. Defined contribution plan specifies how much money will go into a retirement plan today. The amount typically is either a percentage of an employee's salary or a specific dollar amount. Then, those funds often are invested in mutual funds available inside the retirement plan. The amount you have at retirement depends on how much your employer contributes to the plan, how much you as the employee save in the plan, how long you leave those funds invested, and how well your investments perform inside

What happens when a customer buys and sells securities in a restricted margin account on the same day?

A customer has a restricted margin account. The customer sells $7,000 worth of securities and on the same day buys $5,000 worth of other securities. The Regulation T margin requirement is 50%. The customer may: a. Withdraw cash equal to the margin requirement on the net amount When a customer buys and sells securities in a restricted margin account on the same day, it is called a same-day substitution and the transactions are netted against each other. In this question, the sale of $7,000 and the purchase of $5,000 result in a net sale of $2,000. The entire amount will be used to reduce the customer's debit balance, and the customer's SMA will be credited with an amount equal to the net sale proceeds multiplied by the Reg T requirement ($2,000 x 50% = $1,000). If desired, the customer may then borrow this amount.

How can a customer trade options?

A customer needs a new account agreement, an options account agreement, and approval of options trading to trade options.

What is the difference between recession and depression?

A depression is defined as a severe downturn in the economy, lasting 18 months or more, with unemployment rates greater than 15%. A recession is defined as 2 or more consecutive quarters of negative GDP growth.

Which order may DMM not accept?

A designated market maker (DMM) (formerly known as a specialist) may accept all of the orders (GGTC order, day order, market order, limit, stop) listed EXCEPT a not-held order, which allows a floor broker to use discretion in executing an order.

What is difference between a REIT and RELP (DPP)?

A direct participation program in real estate, which is also known as a real estate limited partnership (RELP), would distribute either passive income or passive losses. Both depreciation of the buildings and a lower tax rate on capital gains if the property is sold after one year, are characteristics found in any real estate investment. A REIT, not a RELP, pays cash dividends that are taxable at the same rate as ordinary income.

What is a discretionary order?

A discretionary order (giving broker the ability to decide when to buy / sell securities), which requires written power of attorney

What is selling dividends or dividend selling?

A dishonest broker tactic that involves convincing a client to purchase a stock because it's about to pay a dividend. The broker pretends that this recommendation is in the client's best interest because the dividend will supposedly generate instant returns for the client. In reality, the trade is in the broker's best interest because of the commissions it will generate. The recommendation is dishonest because once a stock is trading ex-dividend, its price decreases by the amount of the dividend, and the investor does not come out ahead.

What does the Investment Company Act of 1940 consider to be an investment company?

A face-amount certificate and a management company (open-end, close-end fund) are two types of investment companies. The third type is a unit investment trust.

What is a face-amount certificate company?

A face-amount certificate company is an investment company which offers an investment certificate that paid a predetermined rate of interest

How do you calculate the payout of a variable annuity?

A fixed number of annuity units multiplied by a variable dollar amount When a variable annuity is annuitized, the annuitant will be assigned a fixed number of annuity units based on several factors, including the value of the investment, assumed interest rate, age and gender of the annuitant, and payout option chosen. This fixed number of annuity units is then multiplied by the net asset value of the separate account at each payout period to determine the dollar amount the annuitant will receive each pay period.

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. For the party selling the security (and agreeing to repurchase it in the future) it is a repo; For the party on the other end of the transaction, (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement. In a repurchase agreement (repo), a dealer sells securities to another dealer or investor and agrees to buy them back at a specific time and price. In effect, the selling dealer borrows money from another party and collateralizes the transaction with the securities. The other side is lending money and is receiving interest from the dealer creating the repo.

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 are general partner violations to the limited partnership? What are not violations?

A general partner is not permitted to compete with the limited partnership. Accepting a payment not to compete would be a conflict of interest. Selling property to the partnership is a definite violation of the conflict of interest provisions, as is commingling partnership funds. While partners are not allowed to borrow from the partnership, lending money to the partnership is permitted.

What is a leveraged ETF?

A leveraged exchange-trade fund would be suitable if the customer anticipated an increase in the S&P 500 and wanted a multiple of that increase. Leveraged-inverse ETF would be suitable if the customer wanted a return that was a multiple or higher return and anticipated a decrease in the S&P 500

What is a step-up CD? Step-down?

A long-term (maturity exceeding one year), step-up CD offers an investor an interest rate that is initially lower than current market rates will pay for that maturity period. The rate will then be adjusted upward at predetermined intervals established by the offering bank. Since they are traded in the secondary market, changes in interest rates will cause the price of this security to fluctuate. Some long-term CDs will be callable by the issuing bank, and the investor may be required to reinvest the funds at prevailing lower interest rates. A step-down, long-term certificate of deposit (CD) offers an investor an interest rate that is initially higher than current market rates will pay for that maturity period. Subsequent interest rates paid to investors will be lower and may be adjusted more than once. Long-term CDs have a maturity of more than one year. An RR should disclose to the client that she will not receive the higher interest rate for the life of the CD.

What is a margin account?

A margin account is an account offered by brokerages that allows investors to borrow money to buy securities. An investor might put down 50% of the value of a purchase and borrow the rest from the broker. The broker charges the investor interest for the right to borrow money and uses the securities as collateral

What is a sinking fund?

A means of repaying funds that were borrowed through a bond issue. The issuer makes periodic payments to a trustee who retires part of the issue by purchasing the bonds in the open market. A term issue is one in which all the bonds mature in one specific year. To accumulate monies to help retire the bonds, the issuer will deposit monies (above the amount to pay interest) in a sinking fund. These monies will generally be used to retire some of the bonds prior to maturity

What is M1 and M2?

A measure of money supply that includes cash and checking / demand deposits (M1) as well as near money. "Near money" in M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.

Duplicate account statements must be sent to FINRA when?

A member firm is required to send duplicate account statements (NOT CONFIRMATIONS) to FINRA when a customer of the firm is an employee of FINRA. The member firm would need written instructions from the employee of FINRA when opening an account in order to send the duplicate account statements.

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.

How can a muni bond be rejected?

A municipal bond can be rejected if it is missing a legal opinion, has missing or mutilated (cannot be ascertained) coupons, or the certificate is mutilated. Cannot be rejected because of a sudden change in market price

When is a muni supposed to get a legal opinion?

A municipal bond is expected to be delivered with a legal opinion unless the bond is identified as ex-legal at the time of the purchase A delivery of municipal bonds may be rejected if they do not meet good delivery requirements such as missing or mutilated coupons or lack of a legal opinion. A change in market price is not a reason for rejecting delivery of municipal bonds (or any other security).

What is the constant yield method for muni bonds at OID and premium?

A municipal bond purchased as an original issue discount (OID) is accreted (not amortized) each year for tax purposes based on a constant yield method (also called constant interest method), which uses the bond's yield to maturity. Municipal bonds purchased at a premium are amortized (not accreted) each year based on a constant yield method.

What is a double-barreled bond?

A municipal general obligation bond in which the cash flows are pledged by two distinct and different entities. One entity will make interest payments, and the other, the principal payments. These are municipal general obligation (GO) bonds as opposed to revenue bonds because they are ultimately backed by the issuer and its taxing power. These bonds, as specified by their trust indenture, are municipal general obligation bond issues. For example, assume a local city issues a double-barreled muni bond to raise funds for a new toll road bypass. In the event that the cash flows from the tolls are unable to cover the interest and/or principal payments (debt service), the shortage would be covered by the issuing city from its general fund. These bonds are thus backed by both the toll revenue stream and the full faith and credit of the issuing city. Even lower yield than normal G.O. bonds

What is the use of a broker broker? And who uses it?

A municipal securities BROKER-DEALER and DEALER BANK may use a broker's broker to help sell bonds. Using a broker's broker will allow for good exposure to the market for the bonds. The broker's broker also keeps the identity of its client confidential. A broker's broker does not divulge the contraparty's name to the buyer or seller. A broker's broker is a primary source for a quote in the secondary market and assists the trader in finding the best price on a specific issue.

Does a muni securities principal have to approve an official statement? Who is the official statement prepared by?

A municipal securities principal does not need to approve an official statement (OS). An OS is prepared by an issuer of municipal securities and issuers are not subject to MSRB rules.

If a muni rep does a sumamry report, must it be approved?

A municipal securities representative does an analysis of an official statement and prepares a summary report. The report must be approved by: a municipal securities principal

What is the compensation the syndicate will receive for its risk on selling group sales (additional takedown)?

A municipality is issuing 40,000 bonds at a public offering price of $1,000. The manager of the underwriting syndicate receives $1.50 per bond. The total takedown is $6.50 per bond and the selling concession is $4.00 per bond. $2.50 per bond - this is the additional takedown Total takedown = selling concession + additional takedown

According to MSRB rules, the delivery of a mutilated certificate is considered a good delivery

A mutilated certificate may be authenticated by the issuer or an agent of the issuer (e.g., a transfer agent or paying agent).

What is an income fund? Growth fund? No-load fund? Sector fund?

A mutual fund investor most interested in current yield (i.e., regular dividend checks) as an investment objective will most likely purchase an income fund. A growth fund invests in companies that are growing rapidly and pay out a small percentage of earnings in dividends. Investors seeking capital gains will most likely purchase a growth fund. (low dividend payout ratio and high PE) A no-load fund is an open-end investment company that does not have a sales charge (commission) and whose investment objectives may be income or capital gains. The justification for a load fund is that investors are compensating a sales intermediary (broker, financial planner, investment advisor, etc.) for his or her time and expertise in selecting an appropriate fund. A sector fund is a mutual fund that invests primarily in a particular industry or geographical area, such as the energy or high technology industries.

What do you need for a discretionary margin trust account?

A new account form, a basic customer margin agreement, and a power of attorney are needed to open a new discretionary account. The basic customer margin agreement includes the hypothecation, loan consent, and credit agreements. A trust agreement is needed to open a trust account. With a bank trust account, the bank serves as custodian and a trustee keeps legal control of assets in the account. These assets can include cash, savings bonds, stocks, bonds, mutual funds, real estate and other property and/or investments.

What is SRO?

A non-governmental organization that has the power to create and enforce industry regulations and standards. The priority is to protect investors through the establishment of rules that promote ethics and equality.

What is a non-qualified variable annuity?

A nonqualified variable annuity is not used in conjunction with a qualified retirement plan (such as an IRA). Any contribution is made with after-tax dollars. Therefore, the appreciated value portion of withdrawals would be taxed as ordinary income and the remainder would be considered as return of capital (amount invested), which is not taxed. If a withdrawal is made prior to age 59 1/2, the ordinary income portion of the withdrawal is assessed a 10% penalty.

What is an all or none order (AON order)?

A order that must be completely filled or else not be filled If it is not an all or none order, then a portion of the order may be purchased

What is a penalty bid?

A penalty bid is an arrangement that permits the managing underwriter to reclaim a selling concession from a syndicate member when securities originally sold are repurchased by the syndicate in stabilizing transactions.

What is a penny stock?

A penny stock, according to SEC rules, is a stock that sells for less than $5.00, that is not listed on Nasdaq or the NYSE. A stock quoted on the OTC Bulletin Board or OTC Pink Market (stocks not listed on NYSE or Nasdaq) (Pink Sheets) that has a bid price of less than $5.00 is defined as a penny stock. Penny stock rules would not apply under the following conditions: The customer is defined as an existing customer, which is a person who has maintained an account with a broker-dealer for more than one year, or has previously engaged in 3 or more transactions involving penny stocks (i.e., an active trader of penny stocks) In nonrecommended or unsolicited transactions In transactions by a broker-dealer that is not a market maker in that security In transactions by an institutional accredited investor

What is the federal annual gift tax exclusion? Is there a way you can give more? Are there restrictions on giving gifts to people?

A person may contribute up to the federal annual gift tax exclusion ($14,000) without paying a gift tax, or the contributor may make a single, lump-sum gift of up to the five-year cumulative limit ($70,000) for tax-free gifting. NO RESTRICTIONS on a donor giving gift

An RR is hosting an event that is focused on the suitability of variable annuities. At the conclusion of the event, the RR provides a sheet for attendees to provide their contact information if they are interested in setting up a one-on-one meeting with the RR. In this situation, if some attendees provide their contact information, the RR is:

A person may register her number on the Federal Trade Commission (FTC) National Do Not Call Registry and have it remain on the list indefinitely. An RR is permitted to contact a person whose name is on this list if the person has provided her prior express written consent. In this question, since the attendees who are interested in being contacted are providing their contact information (including their telephone numbers), the RR is permitted to call them.

What must a person do to become a muni representative?

A person must qualify as a municipal representative prior to effecting a transaction with a customer To become qualified, the individual must pass a qualifying exam and serve a 90-day apprenticeship There is no requirement that the person be registered within a specific period after hire However, the person may only act as an apprentice for a maximum of 180 days.

When is a propsectus required?

A prospectus would be required for a primary distribution as well as a registered secondary distribution.

What is a red herring? Who is related to?

A red herring (preliminary prospectus) relates to a requirement of the Securities Act of 1933 from which municipal issues are exempt.

Who is considered a research analyst and what is a research report?

A registered representative does not need to hold the title of research analyst in order for the report to be considered a research report. If the report provides sufficient information concerning individual equity securities for a client to make an investment decision and is distributed to clients, it is considered a research report. A research report must be approved by a supervisory analyst and contain the proper disclosures.

What must r.r. do if somebody wants to invest in limited partnership?

A registered representative would be required to certify that she informed the customer of all relevant facts relating to the lack of marketability and liquidity of the limited partnership. In addition, after obtaining information about the customer's investment objectives, financial and tax status, other investments, and future financial needs, the RR must have reasonable grounds to believe the customer has sufficient net worth and income to lose his entire investment, or has other liquid assets. The RR must certify that the customer is suitable, and is in a financial position to be investing in this limited partnership. There is no requirement to certify that the customer is an institutional investor.

What kind of retail communications are required to be filed with FINRA?

A retail communication concerning direct participation programs (DPPs), collateralized mortgage obligations (CMOs), and investment companies are all required to be filed with FINRA. A retail communication that does not make any financial or investment recommendation, or promote a product or service, such as providing information about a broker-dealer, does not need to be filed with FINRA.

When is a risk disclosure document needed?

A risk disclosure document may be required but only if options or penny stocks are going to be traded in the account.

What is a saucer pattern?

A saucer is a chart pattern used by technical analysts that indicates that a stock has formed a bottom in its trading cycle and is ready to rise. The bottom of the saucer pattern is a bullish indicator for the stock. The reverse of the saucer pattern is the inverse saucer, where the stock forms a top in its pattern and is expected to fall. Following the logic used in the saucer, this is a bearish indicator.

What is a certificate of deposit?

A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks and are insured by the FDIC. The term of a CD generally ranges from one month to five years. Long-term CDs have a maturity of more than one year Since the securities are traded in the secondary market, changes in interest rates will cause price fluctuations If sold prior to maturity, a CD investor may have a loss or gain. Long-term CDs are issued by banks, but may be sold by any type of broker-dealer The FDIC provides protection up to $250,000 (but amount of FDIC insurance and tax considerations are different depending on whether the CD is purchased in a retirement account). Also insured by SIPC if broker-dealer goes bankrupt In addition, a broker-dealer is not required to maintain a secondary market or act as a market maker in a CD that was sold to the client. This will limit the liquidity of the security if the client needs the funds prior to maturity

What is bearer vs. registered form?

A security not registered in the issuing corporation's books but that is payable to its bearer (the person possessing it). Securities can be issued in two forms: registered or bearer. Registered form means the issuing firm keeps records of a security's owner and mails out payments to him or her. Bearer form means the security is traded without any record of ownership, so physical possession of the security is the sole evidence of ownership. SO YOU WILL HAVE INTEREST COUPONS ATTACHED. Most securities issued today are in registered form.

What is a sell-out?

A sell-out is when a customer of a broker dealer fails to buy according to the terms of the contract or fails to deposit sufficient margin in an account and the firm sells the securities to bring the account up to maintenance.

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 simplified employee pension plan (SEP IRA)?

A simplified employee pension plan (SEP IRA) does not allow the employee to make contributions. SEPs are funded by employer contributions only. (have vesting provisions - usually used for part-time) (USED FOR SMALL BUSINESSES) This is different than for Keogh plans (self-employed persons or unincorporated business), which do allow for employees to make deductible contributions to their own account

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 is a special assessment bond?

A special type of municipal bond used to fund a development project. Interest owed to lenders is paid by taxes levied on the community benefiting from the particular bond-funded project. Backed by charges against benefited property For example, if a bond of this sort was issued to pay for sidewalks to be re-paved in a certain community, an additional tax would be levied on homeowners in the area benefiting from this project. Area homeowners get nicer walking paths, and they will probably see the value of their property increase accordingly, but this comes at a price. Their property taxes will increase to pay the interest owed to the bondholders by the municipality.

What is a structured product?

A structured product is typically built around a fixed-income instrument and a derivative product. The note pays a specified rate of interest to the investor at defined intervals. The derivative component establishes the amount of payment at maturity.

What happens with a tax credit and tax deduction for DPPs?

A tax credit will reduce the amount of taxes owed by a customer directly. A tax credit is more beneficial and may be found in a DPP, which specialized in low income housing. A tax deduction reduces the customer's taxable income. An example of a tax deduction is depreciation and depletion.

What is a tax swap?

A tax swap is the sale and purchase of bonds (or other securities) to realize a capital loss that can be offset against a capital gain.

What is the odd lot theory?

A technical analysis theory/indicator based on the assumption that the small individual investor is always wrong. Therefore, if odd lot sales are up - that is small investors are selling stock - it is probably a good time to buy.

What is a trust fund?

A trust fund is a fund comprised of a variety of assets intended to provide benefits to an individual or organization. The trust fund is established by a grantor to provide financial security to an individual, most often a child or grandchild - or organizations, such as a charity or other non-profit organization. A trust fund can be comprised of cash, stocks, bonds, property and other types of financial products. The recipient of a trust fund must typically wait until a certain age, or until a specified event occurs, to receive a yearly income from the fund. Prior to this, a single trustee, or a group of trustees, manages the fund in a manner appropriate to the trust fund's specifications. This will usually include some allowance for living expenses and perhaps educational expenses, such as private school or college.

What is a trust?

A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries.

What is a survivorship account?

A type of brokerage account which is owned by at least two people, where all tenants have an equal right to the account's assets and are afforded survivorship rights in the event of the death of another account holder. In this type of brokerage account, a surviving member will inherit the total value of the other member's share of account assets upon the death of that other member. All members of the account are afforded the power to conduct investment transactions within the account as well.

What are tax preference items?

A type of income, normally tax-free, that may trigger the alternative minimum tax (AMT) for taxpayers. Tax preference items include private-activity municipal-bond interest, the qualifying exclusion for small business stock and excess intangible drilling costs for oil and gas, excess mining, exploration, and developemnt costs. Tax preference items are added to the amount of AMT income in the tax formula.

What is a moral obligation bond?

A type of revenue bond issued by a municipality or similar government body. A moral obligation bond not only gives investors the tax exemption benefits inherent in a municipal bond, but also provides an additional moral pledge of commitment against default. The issuing body's commitment is supported by a reserve fund established to meet any debt service costs the government may be unable to make. It is important to note that with a moral obligation bond, the additional security provided by the government is only morally - and not legally - binding. However, the pledge is generally regarded as being as credible as a legally binding promise because the issuing government would face negative credit rating effects if it failed to honor the pledge. Moral obligation bonds are municipal revenue bonds that are payable by the state if revenues from the project do not satisfy debt service payments. However, in order for the state to service the debt, approval of the state legislature is required

What is a fill or kill order?

A type of time-in-force designation used in securities trading that instructs a brokerage to execute a transaction immediately and completely or not at all. This type of order is most likely to be used by active traders and is usually for a large quantity of stock. The order must be filled in its entirety or canceled (killed). The purpose of a fill or kill order is to ensure that a position is entered at a desired price.

What is standby underwriting? What kind of offering is mostly used for?

A type of underwriting in which the underwriter agrees to buy all the shares not subscribed to in a RIGHTS OFFERING is a standby underwriting. The issuing corporation realizes that many shareholders will not participate in the rights offering. This may amount to a large number of the shares being offered. The corporation will not receive the money for the shares that are not subscribed to. The underwriter that is standing by to buy all the unsubscribed shares will either buy them at a discount or will receive a fee. This type of an arrangement assures the issuing corporation it will be able to raise the amount of capital it requires.

Who is suited and not suited for a variable annuity?

A variable annuity is most suitable for an investor seeking long-term, tax-deferred income for retirement. A tax-deferred investment, as with a variable annuity, becomes more advantageous for an investor with a higher tax bracket. A variable annuity is unsuitable for customers that have short-term needs since the insurance company may impose surrender charges if the annuity proceeds are withdrawn early. It would also be unsuitable for a client purchasing the annuity in a tax-qualified account such as a 401(k) or IRA, since these accounts already have the benefits of tax-deferred growth. If a client withdraws the proceeds of a variable annuity prior to age 59 1/2, a 10% tax penalty applied

What is a wildcatting program?

A wildcatting program, also called an exploratory program, searches for oil in unproven areas. Although it is considered the riskiest type of oil and gas program due to the high rate of failure, if oil is found, it has the highest profit potential. This is due to the lower cost of acquiring the land. This results in a lower cost of acquiring the land or mineral rights. In order to extract oil and gas, the program will incur significant start-up or up-front costs.

When is a withholding tax applied?

A withholding tax of 20% may apply when a person moves funds from one retirement account to another. Withholding tax can be avoided when funds are transferred from one retirement account to another. There are two methods of transfers, one in which the funds are sent directly between custodians (trustee-to-trustee) and the other is when the check is made payable to the new trustee. (customer never touches check) If the check is made payable to the plan participant, it is defined as a rollover and a withholding tax may apply. Funds from a retirement plan may not be transferred directly to the employee's personal bank account.

What are S&P's rating for bonds? Best and worst rating for munis?

AAA, SP-1 (best) and SP-3 (worst)

When an investor sells an interest in a limited partnership, her cost basis for tax purposes is the:

ADJUSTED BASIS An investor's basis will be reduced by any claimed losses and any cash distributions. This reduced (adjusted) basis is the cost basis at the time of sale.

What is the difference between American style and European style options?

American style options may be exercised any day up to expiration and European style may only be exercised on the last trading day prior to expiration

What is an ADR?

ADRs are American Depositary Receipts, which may be issued as proxies for many different types of individual foreign shares. (Domestic trading of foreign securities) ADRs (American Depositary Receipts) may be listed and traded on U.S. exchanges, such as the New York Stock Exchange or Nasdaq. ADRs may also be quoted on the OTCBB or in the Pink Market and may trade over-the-counter. A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas. ADRs help to reduce administration and duty costs that would otherwise be levied on each transaction.

What is the relation with AIR and separate account?

AIR does not become relevant until the contract owner annuitizes and the annuitant's payments need to be calculated. If the return of the separate account exceeds the AIR, the death benefit will increase. If the return of the separate account is less than the AIR, the death benefit will decrease. However, the death benefit may not decrease below the initial face value of the policy (guaranteed minimum). A variable life insurance policy has a minimum (FIXED) death benefit plus an additional death benefit, which may vary in amount according to the investment performance of the separate account. The performance of the separate account may increase or decrease the policy's death benefit, but the policy's death benefit may never fall below the minimum guaranteed death benefit. Calculation of the variable death benefit must be made at least annually. The value of the separate account must be made daily, much like a mutual fund, and the policyholder's cash value must be calculated at least monthly. It is important to note that the AIR has nothing to do with the cash value of the policy; it only concerns itself with the variable death benefit

A customer buys $10,000 worth of stock in a cash account. Two business days after the transaction settles, the customer calls the broker and tells the broker he does not have sufficient funds to pay for the stock. The brokerage firm will:

According to Regulation T of the Federal Reserve Board, the brokerage firm must sell out the securities in the account and freeze the account for 90 days.

According to Regulation T, when purchasing an option contract the transaction must be paid for within: (when do option transactions settle)?

According to Regulation T, securities must be paid for within 2 business days of the standard (regular-way) settlement date. Since regular-way settlement is three business days, payment is required within FIVE BUSINESS DAYS from the trade date. Therefore, while OPTIONS TRANSACTION SETTLE THE NEXT DAY, the customer has five business days in which to pay for a purchase.

What is Rule 144?

According to Rule 144, an affiliated person (e.g., the president of a company) must hold unregistered (restricted) stock for at least six months before it may be sold and follow trading volume rules. If a client is selling XYZ shares pursuant to Rule 144, a filing (NOTICE OF OFFERING) must be MADE AT TIME OF SALE and is EFFECTIVE FOR NINETY (90) DAYS.

What is a gift of substantial or material value?

According to industry rules, a gift of more than $100 is considered substantial or of material value Member firm personnel may not give, or permit to be given, a gift of material value exceeding $100 per recipient per year to personnel employed by another member firm. The gifts should be valued at the higher of the cost or market value. For example, if tickets to a concert have a face value of $90, but the tickets were purchased at a value of $150, the higher value would be used. The rule does not apply to personal gifts such as the BIRTH of a child or a WEDDING gift, provided these gifts are not related to the business between he recipient and the broker- dealer. Exempt from the $100 limit are occasional meals, tickets to sporting and cultural events, reminder advertising (boxes of pens, key chains, etc.), and expenses related to legitimate business travel. In order for the activity to be considered an expense, the RR must attend the event, not give the tickets to another person or persons.

Employee of another broker-dealer would like to open an account with your firm... what do you need to do?

According to the FINRA, when a registered rep opens an account with another member, the employer must be notified, and duplicate confirms must be made available to the employer upon request NYSE rules require the employer's permission prior to opening the account (member must notify the employee in writing) and duplicate confirms must be sent to the employer.

For options, when do you send a risk disclosure document?

According to the rules of the exchanges where options are traded, a brokerage firm must deliver a risk disclosure document to a customer AT OR PRIOR to the account BEING APPROVED for options trading.

Discuss the UGMA (uniform gifts to minors act) and UTMA (Uniform Transfers to Minors Act)? Can you have one account for two children?

Account becomes the property of the child upon reaching the age of majority is true of a UGMA (uniform gifts to minors act) or UTMA (Uniform Transfers to Minor Act) account Shields tax In both UTMA and UGMA accounts, the earnings are reported based on the Social Security or tax ID number of the minor. This number must be disclosed at the time of the opening of the account. Under the UTMA, when the minor reaches the age of majority as DETERMINED BY THE STATE, the custodian must transfer the account to the owner's individual name. If the owner wishes the former custodian to continue to manage the account, third-party trading authorization can be granted. However, the UTMA does not provide for the continuation of the account as a custodial account. A minor may not endorse a stock certificate. The signature of the custodian for the minor's account must be on the stock certificate. A custodian under the Uniform Transfers to Minors Act is required to act under the Prudent Man Rule in the handling of the account. The custodian may make any transactions that a prudent man or woman would make for her own account. The transaction, however, must be suitable for the minor. CAN ONLY HAVE ON PER CHILD, OPEN ANOTHER ONE IF YOU HAVE CHILDREN

What is a wrap account?

Account in which a brokerage manages an investor's portfolio for a flat quarterly or annual fee. The fee covers all admin, commission, and management expenses. Protects you from overtrading (1-3% fee)

What happens when account is established under the Uniform Gifts to Minors Act?

Accounts established under the Uniform Gifts to Minors Act Taxes are the responsibility of the minor Custodian makes all investment decisions in the account Account must reflect the minor's Social Security number

What is the accrued interest formula?

Accrued Interest Formula = (Principal x Rate x Days of Interest) / 360 360 days for corporate munis (SETTLE T+3) 365 days for government (SETTLE T+1) Accrued interest begins to accrue that day of the last coupon payment and pay up to, but not including settlement date (T+2 days)

If you hold a premium / discount bond to maturity, will the YTM equal the coupon rate?

No... if discount, then YTM > coupon rate if premium, then coupon rate > YTM

How should you execute a spread or straddle strategy?

Advanced option strategies such as spreads and straddles should be executed on one order ticket. In order to enable the investor to ensure the total cost, the order should be entered as a net debit, since the client does not want to pay more than $3,000. If both sides of the spread order are entered separately, market volatility may make it impossible to ensure the transaction will be executed at a net debit or credit. The client has the risk that the order will not be executed since it is possible that both sides of the transaction were not able to be filled at the net debit or credit

Are NASDAQ quotes firm or subject? What is the Level I of Nasdaq? Level II? Level III?

All NASDAQ quotes are firm quotes, meaning dealers are prepared to execute a transaction at the quoted bid or ask. Level 1 shows the inside market only Level 2 displays the quotes of all market makers Level 3 shows the quotes of all market makers and allows a market maker to change its quote

Compared to government securities, what is different about Ginnie Mae?

All government issued securities are taxed only at the federal level. This applies to government agency debt as well. However, Ginnie Mae is an exception and is taxed at all levels.

What securities are marginable? Are not marginable?

All listed securities are marginable (EVEN TREASURIES) except: New issues, mutual funds, and OTC equity securities (pink markets / bulletin board)

What things can you short sale? What is Regulation SHO?

All of the choices listed are prohibited according to the Securities Exchange Act of 1934 except short sales of municipal bonds. Short sales of securities are subject to the borrowing requirements of Regulation SHO (DOES NOT AFFECT OPTIONS). Municipal bonds are exempt securities and are not subject to the borrowing requirements of Regulation SHO.

Where are covenants found in the bond?

All protective covenants for a revenue bond are found in the bond's indenture. Also included in the indenture are the rights and obligations of the issuer and the bondholders.

What is an income (adjustment) bond?

Also known as adjustment bond. A type of debt security in which only the face value of the bond is promised to be paid to the investor, with any coupon payments being paid only if the issuing company has enough earnings to pay for the coupon payment. Income bonds are a type of corporate debt issued by companies emerging from bankruptcy. Interest on all other debt securities must be paid regardless of the corporation's income.

What is a wash sale?

An Internal Revenue Service (IRS) rule that prohibits a taxpayer from claiming a loss on the sale or trade of a security in a wash sale. The rule defines a wash sale as one that occurs when an individual sells or trades a security at a loss, and within 30 days before or after this sale, buys a "substantially identical" stock or security, or acquires a contract or option to do so. A wash sale also results if an individual sells a security, and the spouse or a company controlled by the individual buys a substantially equivalent security. When the wash sale rule is activated, the investor must add the loss to the new cost of the stock regardless of whether the stock is repurchased at a price that is higher or lower than the original cost. In this example, the investor's cost basis for tax purposes is found by adding the 3-point loss to the new cost of $27. The IRS will not allow the loss if the same security or any security convertible into the same security is repurchased within 30 days of the sale.

What is a matched sales purchase agreement for the Fed?

An arrangement whereby the Federal Reserve sells government securities (U.S. Treasuries) to an institutional dealer or the central bank of another country with the contractual agreement to purchase the security back within a short period of time, usually less than two weeks. The security is bought back at the same price at which it was sold, and decreases banking reserves during the term of the matched sale-purchase agreement. This is a rarely-used method of temporarily decreasing reserves and securities holdings, and is done to slightly prohibit market liquidity for the term of the MSP. This financial arrangement is different than the standard open-market operations (such as selling Treasuries to investors) where actions done by the Federal Reserve make permanent changes to banking reserves and securities levels.

Can an employee of a broker-dealer purchase new issues? What is a new issue? Does it matter if the broker-dealer is an underwriter?

An employee of a broker-dealer is considered a restricted person and may not purchase new issues under FINRA rules. New issues under the rule are defined as initial public offerings (IPOs) of equity securities sold under a registration statement. Exemptions from the definition of an IPO include all debt offerings, investment company offerings such as mutual funds and exchange-traded funds, and preferred stock. Whether the broker-dealer is participating as an underwriter does not alter the restrictions.

What would an increase in assessed valuations do to a muni with respect to taxation and credit?

An increase in assessed valuations would indicate that homes within the municipality are increasing in value, which will improve the municipality's credit.

What is an insider to the corporation? How much stock can they own? What can they not do?

An insider, as defined by the Securities Exchange Act of 1934, is a director, officer, or owner of more than 10% of the voting stock of a corporation and his immediate family members. Individuals who become insiders are required to report to the SEC within 10 days of becoming insiders. An officer or director is required to register regardless of the number of shares he owns of the public corporation. Insiders are not permitted to make short-swing profits in the stock of the corporation in which they are insiders. If an insider sells the stock at a profit within SIX MONTHS of its acquisition, or sells stock for a profit that was held six months or longer and then repurchases it within six months of the sale, the corporation may sue for recovery of the profit. Insiders are also NOT PERMITTED to SHORT THE STOCK of the company in which they are shareholders. Insiders are never required to sell shares, but are permitted to buy additional shares as long as it is reported to the SEC.

Who trades on the NYSE floor? How is institutional block trader related to that?

An institutional block trader may forward orders to the NYSE trading floor from the brokerage firm's trading desk but is not physically located and trading on the floor of the NYSE. The DMM (SPECIALISTS), COMMISSION / INDEPENDENT BROKERS, and FLOOR TRADERS are permitted to trade on the NYSE floor. Registered Reps, block traders, and allied members are NOT allowed to trade on the floor of the exchange.

What is a inverse ETF? Normal ETF?

An inverse ETF is designed to deliver the opposite of the performance of an index or other benchmark. An inverse ETF based on the S&P 500 Index seeks to deliver the opposite performance of that index. So, if the S&P 500 rises by 1%, an inverse ETF would decrease by 1%, and if the S&P 500 falls by 1%, the inverse ETF would increase by 1% before fees and expenses. ETF would be suitable if the customer only wanted to track the return of the S&P 500

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. A unit investment trust DOES NOT CHARGE A MANAGEMENT FEE. The portfolio is fixed and there is no investment adviser since unit investment trusts are supervised, not managed. ETFs like SPDR, QQQ, and Diamonds are UIT

What is the problem with AMT?

An investment in an oil and gas limited partnership (Oil and gas direct participation program) may have excess depletion and depreciation as well as excess intangible drilling costs These are tax preference items and may result in an investor being subject to the alternative minimum tax (AMT)

An investor holds stock in a company and shorts some of it - what stocks can he or she tender?

An investor who holds stock in a company that is the subject of a tender offer may tender only stock that he holds long. If a shareholder has written call option positions against the long stock, the options positions will reduce his net long holdings in the stock.

What is the notice of sale?

An official notice of sale is a document created by the issuer to invite competitive bids for the underwriting of municipal bonds. It announces the issuer's intention to sell an issue and invites securities firms to compete for the issue. All information pertaining to the bidding would be contained in the notice of sale. The amount of good faith deposit and expenses to be borne by the purchaser or issuer would be found in a notice of sale. The notice of sale contains information pertaining to a competitive offering of bonds such as the time, place, date of sale, and type of offering, bid limitations. DOES NOT INCLUDE FINAL OFFERING PRICE OR FINAL YIELD OR BOND RATING B/C DETERMINED AFTER YOU WIN THE DEAL.

What is the option premium made up of?

An option's premium is comprised of two components: its intrinsic value and its time value. The intrinsic value is the difference between the price of the underlying (for example, the underlying stock or commodity) and the strike price of the option. Any premium that is in excess of the option's intrinsic value is referred to as its time value. Time value is calculated by taking the difference between an option's premium and its intrinsic value. Since the market price of the stock is greater than the strike price of the put option, this option is out-of-the money and has no intrinsic value.

What is an immediate-or-cancel order?

An order that dictates to fill as much of the order as you can right now and cancel the rest is called an immediate-or-cancel order.

What is a contingency order?

An order that is executed only when certain conditions of the security being traded, or another security, have been fulfilled. Such prerequisite conditions range in scope and depth. In a simple case, a contingency order may depend on the potential purchaser's ability to sell a different security in his or her portfolio to free the funds to make the purchase. In a more complicated situation, an options contingency order's execution may depend on the share price of the options' underlying stock Useful for options

What must an order ticket have?

An order ticket must include the customer's account number, number of shares or par value (for a bond), name of the security, location of the security, limitations (limit, stop, etc.), and whether it is buy or sell. If it is a sell order, the location of the security (long or short) must be indicated. DOES NOT NEED SOCIAL SECURITY

Order to buy at 104 net indicates?

An order to buy at 104 net indicates the customer wants to pay a total of 104 including any markup or commission

How does an underwriter stable a new issue for an offering price at $21?

An underwriter can stabilize a new issue AT or BELOW the offering price (offering = $21). The underwriter could stabilize at $20.90 and $20.20, but not too low

What is an annuity suitability rule?

Annuity suitability rules (for things like variable annuities) require that contracts sold through FINRA members be forwarded to the representative's OSJ and be approved by a principal within 7 business days of receipt before being sent to the insurance company.

Can a broker-dealer sell securities in a particular state he or she is not registered in?

Any broker-dealer or registered representative selling securities in a particular state must be registered in that state. Being registered with FINRA does not necessarily register an individual in a given state. Many states have additional registration requirements besides joining FINRA. A broker-dealer must be registered in each state in which it conducts business. In addition, the securities and the registered representative must be registered in all states in which the issue is sold. Registration as an investment adviser is not the same as registration as a broker-dealer. So if client has brokerage account in New York, but moves to Montana to retire and she still intends to maintain the account which is only registered in New York, the broker-dealer must register in Montana

What is a closely-held corporation? What should a RR do if a customer wants to buy into one?

Any company that has only a limited number of shareholders. Closely held corporation stock is publicly traded on occasion, but not on a regular basis. These entities differ from privately owned firms that issue stock that is not publicly traded. Those who own shares of closely held corporations should consult a financial planner with expertise in the tax and estate ramifications that come with owning this type of stock. The registered representative should inform the customer of the risks involved in buying thin issues because of the probability of wide price fluctuations (volatility) and because of the small amount of the shares outstanding.

What disclosures do broker-dealers need to make?

Any investment banking compensation paid during the last 12 months, the anticipated price target, and the fact that the analyst is a director of the company are all required disclosures In addition, any ownership in the company held by the analyst or a member of the analyst's immediate family at the time the report is issued must be disclosed. Broker-dealer must disclose if the firm has an investment banking relationship or makes a market in the common stock of ABC. It must also disclose its ownership in a subject security if the ownership is equal to or greater than 1% beneficial ownership in common equity. Since nonconvertible debt is not considered common equity, disclosure is not required. The fact that the analyst formerly owned shares that were sold does not need to be disclosed.

What is manipulating securiites called?

Any person that buys or sells a security for the purpose of attempting to stop the price from falling (pegging) or rising (capping) is engaging in a manipulative action.

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. An institutional investor under this rule is any bank, S&L, insurance company, registered investment adviser or investment company (mutual fund), any person with total assets of at least $50 million, government entity, employee benefit plan, any member firm or registered person of the firm, and any person acting solely for any institutional investor.

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 Coverdell Education IRA?Is it only for college?

Anyone may contribute to a Coverdell Education IRA for a child, but the total contributions to the account are limited to $2,000 per year. Coverdell - "qualified education expenses" so K-12 Account doesn't transfer to minor when he is of age (only UTMA and UGMA accounts) There is no percentage requirement for investments in the account. Money must be used by child's 30th birthday.

An investor has been saving for her child's college education using a 529 plan. If her child will be attending college in a few years, what should she do?

As a child approaches college age, a suitable investment strategy is to move from growth-oriented securities, such as equities, to income-oriented securities, such as bonds, and money-market funds. Once a child begins to attend college, most of the funds should be invested in money-market funds or other types of short-term investments that are liquid with very little risk of capital. NEED LIQUIDTY!!!

What is an asset allocation fund?

Asset allocation funds hold diversified portfolios of stocks, bonds, and money-market instruments. The percentage of the portfolio invested in each of these categories is shifted by the fund manager from time to time, often according to computer models.

What is the minimum amount invested for opening long or short margin account for Reg T to apply?

At least $4k to be invested

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.

What does it mean to solicit proxies?

Attempt by a group to obtain the authorization of other members to vote on their behalf in an organizational ballot. In corporate settings, a proxy solicitation is usually accompanied by a 'proxy statement.'

Lagging economic indicators

Average duration of unemployment Relationship of inventors to sales, manuf. trade Labor cost per unit of output for manufactured goods Average prime rate charged by banks Commercial and industrial loans outstanding Relationships of consumer installment credit to personal income Consumer price index for services

What are leading economic indicators?

Average weekly hours (manufacturing) Average weekly jobless claims for unemployment insurance Manufacturers' new orders for consumer goods/materials Vendor performance (slower deliveries diffusion index) Manufacturers' new orders for non-defense capital goods Building permits for new private housing units. The Standard & Poor's 500 stock index Money Supply (M2) Chagne in amount of credit outstanding for business and consumers Interest rate spread (10-year Treasury vs. Federal Funds target) Index of consumer expectations

What are Direct Pay Build America Bonds (BAB)?

BABs are a type of municipal bond that pays taxable interest but the Treasury will reimburse 35% of the interest paid on the bonds to the issuer, which reduces the cost of borrowing. This would allow municipal issuers to compete with corporate issuers when raising capital. Type of muni bond that is taxed Cannot be used for refund, working capital, and private activity bonds

What is a balanced fund?

Balanced fund: fund that combines a stock component, a bond component and, a money market component, in a single portfolio. Generally, these hybrid funds stick to a relatively fixed mix of stocks and bonds that reflects either a moderate (higher equity component) or conservative (higher fixed-income component) orientation.

What are bank-qualified bonds?

Bank-qualified bonds are issued by small municipalities and, to qualify, a municipality may only issue up to $10,000,000 annually. This is done to encourage commercial banks to invest in locally issued municipal securities. Commercial banks that purchase this type of security are permitted to deduct 80% of the interest cost paid to depositors on the funds used to purchase the bonds.

When do listed equity options stop trading? When do all options stop trading?

Beginning February 15, 2015, the expiration date for equity options is the third Friday of the expiration month, at 11:59 p.m. Eastern Time. All equity options stop trading on the third Friday of each month

What does head and shoulders top formation indicate?

Bearish Bottom formation: bullish

Why is liquidity important for somebody seeking capital appreciation?

Because it gives them the ability to sell when advantageous since the market is liquid

Treasury arbitrage restrictions generally prohibit issuers of municipal securities from:

Because of the tax exemption allowed on municipal bond interest, municipalities are normally able to issue bonds with coupon rates below those of Treasury securities. This presents an excellent arbitrage opportunity. A municipality can borrow at a low rate of interest and invest the money in higher-yielding risk-free Treasury securities. Congress has enacted laws, known as Treasury arbitrage restrictions, that prevent state and local governments from misusing the tax exemption.

What is delivery versus payment and receipt versrus payment? And what must the broker-dealer receive before accept a order?

Before accepting a DVP (delivery versus payment) or RVP (receipt versus payment) order from a customer, a broker-dealer must receive the name of the customer's agent and the customer's account number. The order ticket must be marked DVP or RVP. Delivery versus payment (DVP) is a settlement system that stipulates that cash payment must be made prior to or simultaneously with the delivery of the security. Delivery versus payment is from the buyer's perspective; from the seller's perspective, this system is called receive versus payment (RVP). DVP/RVP requirements arose as a result of institutions being prohibited from paying money for securities before the securities were held in negotiable form.

What is the long initial equity requirement for a margin account? So what happens to buying 100 ABC @ 15, 100 ABC @ 30, and 100 ABC @50

Below 2k in PROCEEDS = 100% of purchase 2k to 4k = 2k Above 4k = 50% (reg T) B - 100 ABC @ 15 = 1500 B - 100 ABC @ 30 = 2000 (1000 on debit) B - 100 ABC @ 50 = 2500 (reg T)

What is a short initial requirement for a margin account? So what happens to short-selling 100 ABC @ 15, 100 ABC @ 30, and 100 ABC @50

Below 4k in PROCEEDS = 2k Above 4k = 50% (reg T) SS - 100 ABC @ 15 = 2000 SS - 100 ABC @ 30 = 2000 SS - 100 ABC @ 50 = 2500

What are benefits of limited partnerships?

Benefit of limited partnership: limited liability, flow-through of income and expense, tax credits

What can limited partners not do?

Benefit of limited partnership: limited liability, flow-through of income and expense, tax credits Limited partners (PASSIVE INVESTORS) have the right to receive their portion of income and losses, examine books and records, and make loans to the partnership. If they get involved in the management of the program, such as deciding which properties to acquire, they could be considered general partners and lose their limited liability.

What are the different types of syndicated deal (best efforts, firm commitment, negotiated underwriting, standby underwriting)?

Best Efforts: Underwriter promises to make a full-fledged attempt to sell IPO, but underwriters are not responsible for any unsold inventory Firm Commitment: underwriter assumes all inventory risk and purchase all securities directly from issuer. Bank is an agent, will become principal if it assumes the risk of the unsold shares Negotiated Underwriting: Process in which purchase price and offering price for a new issue are negotiated. Underwriter pays the issuer a purchase price, and public pays offering price (spread are proceeds to underwrite) Standby underwriting: A type of underwriting in which the underwriter agrees to buy all the shares not subscribed to in a rights offering is a standby underwriting. The underwriter that is standing by to buy all the unsubscribed shares will either buy them at a discount or will receive a fee. This type of an arrangement assures the issuing corporation it will be able to raise the amount of capital it requires.

If in a real estate limited partnership / oil and gas program, the prospectus does not specify the actual property... what is this called?

Blind pool If a real estate program's prospectus does not specify the actual properties to be purchased, it is known as a blind pool (or nonspecified property) program. An oil and gas program may also be considered a blind pool if the properties to be drilled are not specified in the prospectus.

What are Blue-Sky laws?

Blue-Sky laws are state securities laws. These laws apply to the registration of sales personnel (registered representatives), the registration (new issues) and sale of nonexempt securities. REITs are considered nonexempt securities, regulated by state law.

What happens with a dividend and capital gain distribution from a mutual fund? What happens if shares are exchanged for another mutual fund shares?

Bond interest, stock dividend, short term capital gain taxed at ordinary income. Capital gain DISTRIBUTION and selling out of mutual fund for gain is at capital gain. Dividends and distributions may be reinvested automatically in additional shares, but STILL MUST PAY TAXES. They may not be combined to determine yield. An exchange within a family of funds is considered a sale and subsequent purchase, and will be a taxable event if the sale resulted in a gain.

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. The underlying asset may be an equity security unrelated to the issuer, or a basket of stock, or an index. The issuer agrees to pay this higher coupon rate since it has an option to sell a security to the investor if the price of the security falls below a specified value known as the knock-in level. If the price of the underlying asset stays above the knock-in level, the investor will receive the high coupon and the full return of her principal (the most beneficial option). If the underlying asset falls below the knock-in level, the investor will be obligated to purchase shares of the underlying asset at a fixed price (CAN LOSE PRINCIPAL). The price of this asset may have depreciated below the knock-in level and the investor may receive substantially less than the original principal. The investor is anticipating a stable price for the underlying asset and is not able to participate in any increase in the value of the underlying asset.

When do bonds pay interest? When do stocks pay dividend?

Bonds pay interest semi-annually Stocks pay dividend quarterly

When is YTC > YTM and vice versa?

Bonds sold at a discount will have a YTM higher than the nominal yield, because the YTM takes into account the capital gain that is earned when the bond matures at par. For bonds sold at a discount: YTC > YTM > CY > NY For bonds sold at premium: NY > CY > YTM > YTC

If two brothers open a joint options account, who must sign?

Both

Who can discipline a RR employed by a broker-dealer?

Both the SEC and FINRA may discipline a registered representative employed by a broker-dealer for fraudulent securities activities. The MSRB has no enforcement power.

A customer has a cash account that has securities valued at $320,000 and $180,000 in cash. The customer and a spouse also have a joint account with securities valued at $120,000 and $270,000 in cash. If the member firm were to become bankrupt, the coverage under SIPC would be:

Both the individual account and the joint account are considered separate customers and will each receive independent coverage of $500,000, of which no more than $250,000 may be for cash. In the individual account, full coverage will be provided of $500,000 ($320,000 of securities and $180,000 in cash). In the joint account, the full value of the securities is covered. However, only $250,000 of the cash in the account is covered. The total coverage for the joint account would be $370,000 ($120,000 + $250,000). For the balance of $20,000 cash, the customer will become a GENERAL CREDITOR of the broker-dealer. So if Cash >250k, SIPC covers up to 250k, but if more, you would become general creditor... Securities can be up to 500k (not restricted by 250k amount)

What happens if you cannot meet your margin call by paying cash or stock?

Broker-dealer will liquidate 4x the maintenance call i.e. so 12k in cmv, 10k in debt, and 2k in equity... so need to be at 3k for maintenance... than liquidate 4k of stock so 8k cmv,6k debt, 2k equity

When do brokerage firms send customer statements for active accounts? For inactive accounts?

Brokerage firms send customer statements monthly for accounts with activity during that month. For inactive accounts, statements must be sent at least quarterly.

What is purpose of buying options? Selling options?

Buy options to protect from downside; sell options to generate income

What do you buy-in, sell at in a fund? How do you know what the sales charge is? How is sales charge calculated?

Buy-in at offer price (buy-in in addition to a sales-charge) Sell at bid-price or (NAV) - may pay redemption fee when selling (when redeeming shares - typically based on the next calculated NAV so not known at redemption) The sales charge of the OCEAN Fund is the difference between the bid price of $5.25 and the offer price of $5.50, equals $.25 ($5.50 - $5.25 = $.25). The sales charge is always expressed as a percentage of the offering price. The sales charge divided by the offering price of $5.50 equals a sales charge for OCEAN Fund of 4.5% ($.25 sales charge divided by the $5.50 offering price).

What is a straddle?

Buying a put and call with the same strike price and maturity - expect volatility Max Gain - Unlimited Max Loss - Premium paid

What is a spread?

Buying and selling calls / Buying and selling puts

A customer is currently short 100 shares of ABC common stock at 57.50 and, for protection, has entered a buy stop order at 60. Round lot trades that took place after these orders were entered were: 58, 59.50, 60.10, 60.50, 60, 59.85 The round-lot trade that activated the order was:

By entering the buy stop order, the client is attempting to limit any loss to about $250 (2 1/2 points on 100 shares). The buy stop is entered above the current market price. The stop will activate on the first round-lot trade, which occurs at or through (above, since this is a buy stop) the stop price. That trade occurs at 60.10. That is not the same price as the executing price

What does the CFTC do?

CFTC is the commodity futures trading commission and regulates the commodity and futures market

What happens when you liquidate a 1000 shares a margin account?

CMV and debt reduced dollar for dollar, SMA goes up by 50% of the value

In margin account with 30k market value, 10k debit, 20k equity, what happens if stock goes down to 16k?

CMV goes to 16k, Debt is 10k, and equity is 6k, SMA would remain the same You are restricted cause reg t requires 8, but maintenance is 4k

In margin account with 20k market value, 50% equity, what happens when stock goes to 30k?

CMV goes to 30k, debit 10k, equity 20k, and SMA increase to 5k (stock increase - 50% of increase to SMA)

What products are issued at a discount?

CP, Bankers' acceptances, treasury bills are issued at a discount

Almost all revenue bonds have what feature?

Call feature

Who are call options issued by? What other products are issued by issuers?

Call options are issued by the Options Clearing Corporation (OCC) and not by an issuer of securities. The other products (Warrants, rights, convertible preferred stock) are created by an issuer of securities.

What happens if you have net LOSS in capital gains / losses?

Can net 3000 out of ordinary income and carry forward

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)

What happens if you are afraid of the Dollar appreciating?

Cannot trading options on US dollar. Therefore, buy put on Euro (Euro depreciates) or other currency. If afraid of Euro appreciating, buy Euro Call.

What kind of care should be taken in designing websites?

Care should be taken in the design of Web sites. The name of the member firm with whom the registered representative is associated must be displayed While the use of the FINRA logo is NOT permitted, the registered representative's association with a FINRA member firm is allowed However, when a reference to FINRA membership is used, the Web site must provide a hyperlink to FINRA's home page Links to other Web sites are allowed but care should be taken that these sites do not provide fraudulent or misleading information.

What is the cash value of the variable life policy?

Cash value is built up so that in the future policyholders may borrow and use to pay policy premiums or pass on to heirs. The cash value of a variable life insurance policy increases or decreases in relation to the performance of the separate account. Poor performance could cause the cash value to decline to zero. Although the death benefit can also increase or decrease, it may never fall below a set minimum (face value of the policy). The premiums (amount you pay) for variable life policies are fixed for the life of the policy. An expense guarantee clause in life insurance contracts prevents the insurance company from raising expense charges for the administration of the policy. As long as the performance of the separate account is positive, the cash value will increase. ALSO OFFERS YOUR LIFE INSURANCE BENEFITS

What is the cheapest alternative if you think price will decline?

Cheapest alternative is buying put (selling stock short is expensive cause need 50% depost for margin)

What is the COBE?

Chicago board options exchange - regulated by SEC

What do classical economic theory say?

Classical economists believe that, if left alone, the economy will naturally reach its most efficient level of production and ensure a healthy medium (laissez-faire)

To finalize margin account, client needs to do what?

Client needs to sign margin account, sign credit agreement, margin agreement, hypothecation agreement

What kind of funds charge a management fee?

Closed-end investment company, open-end investment company, ETF (that are managed... unmanaged don't have management fees), hedge fund, private equity funds

What is a collar position?

Collar is commonly used to protect profits earned from a long stock position. It is established by going long the stock, long a put, and going short a call. Both options are usually out-of-the-money when the position is opened.

What securities are exempt from registration (act of 1933)?

Commercial paper with a max maturity of 270 days, muni bonds, government bonds, and domestic bank securities

What is the common stock ratio?

Common stock ratio = (Common stock [par value + paid in capital] + Retained Earnings) / Total capitalization

What documents are required to be sent to purchaser of a new issue of muni bond?

Confirmation and copy of official statement

What are convertible bondholders considered?

Convertible bondholders are considered creditors of a corporation and provide investors with the ability to convert their bonds into shares of common stock of the same issuer at a set price (conversion price). This feature links these types of bonds to the equity markets and the price of a convertible bond is affected by the price of the underlying stock. However, if the price of the underlying stock declines to the point where there is no advantage to the conversion feature, the bond may sell at a price based on its inherent value as a bond, disregarding the convertible feature. Moreover, convertible bonds are issued by companies with weaker credit ratings and allow the issuer to sell debt at a lower cost. Since the conversion feature is a benefit to the bondholder, convertible bonds will have a lower coupon than similar nonconvertible bonds.

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)

What are corporates and munis quoted in?

Corproates - 1/8 Munis / govies- 1/32

What is in the trust indenture of a bond?

Covenants / responsibilities of the issuer

Key words for Securities Act of 1934

Creation of SEC FRB - right to regulate the extension of credit by broker-dealers (Reg T) Regulate exchanges Regulate solicitation Antifraud provisions Issuer of equity subject to financial reporting requirements (not debt) Secondary market activity - short sales, stabilization and registration of OTC brokers / dealers Insider of the corporation (director, officer, owner with >10% of voting stock)

What is the short margin account formula? What is credit balance made of? How is SMA calculated?

Credit balance - SMV = Equity Credit balance = Short sale proceeds + Margin deposit (50% of initial SMV) SMA = Equity - 50% of SMV

A registered representative employed by the research department of a member firm is NOT permitted to be supervised by which department of a broker-dealer?

Current regulations require a member firm's research department to be separate from its investment banking department to avoid conflicts of interest. An RR employed by the research department is not allowed to be supervised by the investment banking department. The rules do not specify which area of a broker-dealer must supervise an RR working in research, but they do state which department is not permitted to supervise.

What is current yield on bonds?

Current yield = Annual Interest / Current market price

How long do you have to hold stock for dividends to be taxed at capital gains rate?

Currently, dividends paid on stock held by individuals for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date are taxed at a maximum rate of 20%. This is the same maximum tax rate as long-term capital gains. Since the individual held the stock less than the 60-day period, the dividend is taxed as ordinary income. Currently, ordinary dividends and short-term capital gains those on assets held less than a year are subject to one's income tax rate. However, "qualified dividends" and long-term capital gains benefit from a lower rate. Qualified dividends are those paid by domestic or qualifying foreign companies that have been held for at least 61 days out of the 121-day period beginning 60 days prior to the ex-dividend date.

If there is a control relationship with regards to a security - what must the customer know? What is control relationship in a muni broker-dealer?

Customers must be informed about the existence of a control relationship regardless of the type of account (i.e., discretionary or nondiscretionary) or type of transaction (i.e., agency or principal). The customer must be told of the relationship prior to the trade. A written disclosure must be made to the customer regarding a control relationship at or prior to the settlement date. A control relationship exists when an employee of the underwriter is in a position of influence with the municipality, such as the mayor, or a member of the city council

What is the D/E ratio?

D/E = Total Debt / (Common stock + P.I.C + R.E)

In a margin account, what are customers charged interest for?

DEBIT (b/c this is what you borrow)

How many stocks in Dow Jones Composite and S&P500?

DJ Composite: 65 S&P 500: 500

What is the DTCC?

DTCC (Depository Trust & Clearing Corporation): post-trade financial services company providing clearing and settlement services to the financial markets Regular-way settlement for stock transactions is in three business days. In most cases, settlement occurs electronically through DTCC. In this case, since the seller must make physical delivery of the securities, settlement takes place at the buyer's premises.

When is margin marked-to-market?

Daily at 4pm at market closing price

What are the different types of orders (day order, market order, stop order, stop-limit order, good til canceled order?)

Day order - order to buy or sell a security that automatically expires if not excuted on the day the order was placed Market order: order that an investor makes through a broker or brokerage service to buy or sell an investment immediately at the best available current price Stop order (or stop-loss): order to buy or sell a stock once the price of the stock reaches a specified price When stop price is reached, stop order becomes a market order Buy stop order is entered at a stop price above the current market price. Investors generally use a buy stop order to limit a loss or to protect a profit on a stock that they have sold short. A sell stop order is entered at a stop price below the current market price. Investors generally use a sell stop order to limit a loss or to protect a profit on a stock that they own. Stop-limit order: An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will be executed at a specified price (or better) after a given stop price has been reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy (or sell) at the limit price or better. For example, let's assume that ABC Inc. is trading at $40 and an investor wants to buy the stock once it begins to show some serious upward momentum. The investor has put in a stop-limit order to buy with the stop price at $45 and the limit price at $46. If the price of ABC Inc. moves above $45 stop price, the order is activated and turns into a limit order. As long as the order can be filled under $46 (the limit price), then the trade will be filled. If the stock gaps above $46, the order will not be filled. Good til canceled (GTC) order: order to buy or sell a security at a set price that is active until the investor decides to cancel it or the trade is executed If the order does not have a good til canceled instruction, the order will expire at the end of the trading day the order was placed Open or good-until-cancelled (GTC) orders that are entered below the market are automatically reduced when a stock sells ex-dividend unless they are marked Do Not Reduce (DNR). Orders that are entered below the current market at the time they are entered are buy limit orders, sell stop orders, and sell stop-limit orders. Open orders that are entered above the market are sell limit orders, buy stop, and buy stop-limit orders. The GTC sell stop and sell stop-limit orders are entered below the market and are reduced on the ex-dividend date.

What happens if day orders are not fulfilled?

Day orders may be executed in parts, any remaining shares unfilled at the end of the day are cancelled.

What happens when you withdraw cash from a margin account? What happens when you liquidate stock?

Debit increases and SMA will be decrease by same amount 100% are used to reduce debit balance (CMV decreases) and SMA is increased by 50%

In margin account with 24k market value, 10k debit, 14k equity, 2k of SMA, what happens when you withdraw 2k of SMA?

Debit increases to 12k, equity 12k, and cmv is still 24k

What would debt per capita be used for?

Debt per capita is used when analyzing a general obligation bond and would not be considered for a revenue issue. =(Direct debt + overlapping debt) / # of people

What happens after a decision is made at a FINRA hearing panel? NYSE? Who else uses an arbitration panel?

Decisions of a Hearing Panel regarding complaints can be appealed to the National Adjudicatory Council. Board of Arbitration of the NYSE. ARBITRATION DECISIONS ARE FINAL for both NYSE and FINRA. RR that have disputes with employers

What does the board of directors?

Declare dividends Can also do stock split but must have shareholder approval

What are low-beta stocks?

Defensive stocks, public utilities, basic needs - food, clothing, cosmetic, tobacco, alcoho

Does 401k, Roth IRA or defined benefit plan use actuarial assumptions?

Defined benefit plan

What is a defined benefit plan?

Defined benefit plan is a type of pension fund. Pension funds and other tax-deferred accounts would not benefit from the tax exemption provided by municipal bonds. (Corporation at risk) As a result, unless the bonds are taxable and offer yields equivalent to other taxable bonds, pension funds would not include municipal bonds in their portfolio (b/c muni yield takes into account no tax so lower yield). The exception would be Build America Bonds (BABs), which are taxable municipal bonds.

What are you focused on when investing in G.O bonds

Demographic, population size, TAXES, assesed property value

What kind of orders can a DMM hold on his book?

Designated market maker is permitted to hold a stop, limit, and stop-limit order

What is a catastrophe call provision?

Destruction by fire would be included in a catastrophe call provision and permit the issue to be called (revenue bond)

An advertisement for municipal securities states the following: "15-year 10% tax-free bond priced to yield 12% to maturity. Call us now for more details." According to MSRB rules, this advertisement should also state that:

Discount bond!!! According to MSRB rules, the advertisement must state that a portion of the yield to maturity for a discount bond may be subject to taxation and, therefore, does not represent a fully tax-free yield. In this question, the bond is being offered at a discount because the yield to maturity (12%) is greater than the nominal yield (coupon rate 10%). At maturity, the discount would be subject to taxation as ordinary income, causing the net yield to be between 10% and 12%.

What happens to dividends and capital gains from a tax-exempt fund?

Dividend income from a tax-exempt fund is not taxed at the investor's marginal rate. (Note, however, that capital gains distributions from a tax-exempt fund are taxable.)

How is a dividend payout ratio calculated?

Dividend payout ratio = Dividend per share / EPS or Dividends / earnings is % of earnings per share that is being paid in the form of dividends

What happens to dividend and interest paid on foreign securities?

Dividends and interest paid to a U.S. investor on foreign securities may be subject to a withholding tax by the country from which they were paid U.S. citizens and corporations owning foreign stock may receive dividends from which foreign taxes have been withheld. The investor still owes U.S. income tax on the net dividend. The amount of the FOREIGN TAX, however, may be claimed by the investor as a DEDUCTION AGAINST INCOME or may be applied as a CREDIT AGAINST US TAX If the investor has securities that paid dividends and/or interest that were subject to a foreign tax, the broker-dealer will send the investor a form that will report the gross amount of the dividends or interest, and the amount of tax withheld by the foreign government

What are don't know trades?

Don't know (DK) trades occur when the contrabrokers disagree or have conflicting details of a trade (disagreement on price, mismatch on size, no record of the trade at one of the firms). While insider trading is illegal, suspicion of insider trading would not cause a DK notice to be sent.

What is true concerning the disclosure requirements of CMOs in correspondence?

Due to their unique characteristics, CMOs may not be compared to any other types of investment, including a certificate of deposit. This prohibition applies to any communications with the public about CMOs, which includes retail communications and correspondence.

What are STRIPS issued at?

They are issued at a discount.

What happens during variable annuity pay-in period? What are accumulation units

During the pay-in period of a variable annuity, the client is continually purchasing accumulation units. These accumulation units are then exchanged for a fixed number of annuity units when the payout period begins (# of annuity units will not change) The monthly payout is determined actuarially and is based on the performance of the separate account Accumulation units are an accounting measure used to determine an owner's interest in the separate account during the accumulation or pay-in phase. Their value will vary based on the performance of the separate account. (Annuity units are used during the annuity or payout phase.) Taxed only on interest (not the prinicpal you are getting back)

What happens to a RR during a registration period ("cooling off period")?

During the registration period, a registered representative may not send research reports to clients nor accept orders and payments for new issues from clients. The registered representative may send a preliminary prospectus and receive indications of interest from his clients. Registration ensures companies provide the SEC and potential investors with all relevant information by means of the prospectus and registration statement. A registered representative may discuss the offering only with employees at the firm even when a registration has not been filed. If a registration statement has been filed with the SEC, the registered representative may send a customer a red herring and obtain indications of interest to purchase the new issue. The registered representative cannot accept money nor guarantee a customer a particular amount of the issue.

How do you calculate EPS?

EPS = (NI - Dividends on PREFERRED STOCK) / Avg. Outstanding shares

What are the extra fees called for ETF and mutual fund?

ETF - commission Mutual fund - sales charge

What kind of expense do you pay in mutual fund vs. ETF?

ETF = commission Mutual fund = sales charge

What kind of account can ETF be purchased in?

ETFs may be purchased in a cash or margin account. This applies to long positions in regular ETFs, inverse ETFs, or leveraged ETFs. If an investor sells short an ETF, this transaction must be executed in a margin account similar to selling short any equity security.

Can you margin ETFs or mutual funds?

ETFs, can do so immediately - NOT NEW ISSUE

Does institutional communication need to be filed with FINRA / approved by principal?

Each broker-dealer is required to establish written policies and procedures to review institutional communications, but principal approval is not required. In addition, an institutional communication is not required to be filed with FINRA.

What are minimum maintenance requirements based on?

Either the CMV or SMV

What is a ECN?

Electronic communication networks (ECNs) are trading systems designed to match buyers with sellers of securities Can be used by both institutional and retail investors Benefits of their use are immediate automatic execution if a matching buy or sell order can be found on the system ECNs do not allow investors to trade directly with one another (ANONYMOUSLY), but allow subscribers such as broker-dealers to use these systems to execute the orders sent to them by their clients Some broker-dealers use ECNs to execute customer orders. ECNs act as matching systems to execute orders from subscribers. Some broker-dealers will use a market maker during normal business hours and an ECN to execute trades after normal business hours (after 4 p.m.). If the system cannot match a buyer and seller, a client's order may have a limited ability to be executed. Some ECNs will accept only certain types of orders, such as limit orders. Trades are subject to SRO regulations and the commissions clients are charged generally are not higher if a broker-dealer uses an ECN. NOT MARKET MAKER

What are coincident economic indicators?

Employees on non-agricultural payrolls Personal income less transfer payments Index of Industrial Production Manufacturing and trade sales

What kind of benefits do equipment leasing programs and low-income housing have for DPP?

Equipment leasing programs and low-income housing are designed to generate income and have the potential for tax benefits. Low-income housing also has significant tax credits Equipment leasing - generate ability to deduct depreciation expense for tax purposes.

What is SMA?

Equity in excess of Reg T based on the increase in the LMV

What is an equity-indexed annuity?

Equity-indexed annuities (EIAs) are annuities that provide a guaranteed minimum rate of return (unlike variable annuities), but can yield a greater rate of return based on the performance of a linked stock market index. Like a fixed annuity + variable annuity They also provide tax-deferred growth. Currently, EIAs are not considered securities.

What are Eurodollars? What are Eurodollar bonds?

Eurodollars are defined as U.S. dollars on deposit in foreign banks, not just in Europe Eurodollar bonds typically ARE SOLD OUTSIDE THE US, BUT MAY TRADE IN THE US AFTER A SEASONING PERIOD OF 40 DAYS AFTER ISSUANCE

Who has a fidelity bond?

Every broker-dealer is required to have a fidelity bond, which provides insurance in the event of a fraud judgment against the broker-dealer.

What is ex-dividend?

Ex-dividend: A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be given ex-dividend status if a person has been confirmed by the company to receive the dividend payment. The owner of a call and the writer of a put are entitled to receive the dividend if the option is exercised before the ex-dividend date. In both cases, the exercise results in the individual buying stock. To be entitled to a dividend, stock must be purchased prior to the ex-dividend date. Reduces share price by dividend amount

What is churning?

Excessive trading by a broker in a client's account largely to generate commissions. Churning is an illegal and unethical practice that violates SEC rules and securities laws. While there is no quantitative measure for churning, frequent buying and selling of securities that does little to meet the client's investment objectives may be construed as evidence of churning. Churning may often result in substantial losses in the client's account, and even if profitable, may generate a tax liability for the client.

What are exercise limits?

Exercise limits relate to the maximum number of contracts that an individual may exercise during a five-business-day period for each underlying stock on each side of the market. Exercise and position limits apply cumulatively to all accounts that a customer maintains at all brokerage firms, not for each account at each firm.

What do increased i.r. and increased costs, and low unemplyoment mean?

Expanding economy (higher costs = higher demand for goods), so Fed will try to combat inflation

What do the costs of services to clients have to be? What is the one fee that does not apply?

FEES OTHER THAN COMMISSIONS must be reasonable based on the service for which the fee is charged, and they cannot be discriminatory between clients of the broker dealer.

In order to implement a portfolio margin program, the firm must obtain approval from:

FINRA

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. An immediate family member of an employee (an RR) of a member firm may be a restricted person. Immediate family members include a spouse, children, parents, siblings, in-laws, and any other person who is materially supported by an employee of a member firm. An exception exists if a nonsupported, immediate family member BUYS the IPO from a DIFFERENT BROKER-DEALER. There is no requirement to purchase the shares only from a selling group member. Portfolio managers, which include persons who can buy or sell securities on behalf of institutional investors (e.g., banks, investment companies, investment advisers, insurance companies, savings and loan institutions), as well as anyone whom they materially support. These are people who are in a position to direct future business to the firm, which is the reason for their restricted status.

How does FINRA define a complaint?

FINRA defines a complaint as any written statement of a customer, or any person acting on behalf of a customer, alleging a grievance involving the activities of those persons under the control of the member in connection with the solicitation or execution of any transaction or the disposition of securities or funds of that customer The note is considered a complaint and the RR must take it to his supervisor. The broker-dealer must keep the complaint in its records and also must record what, if anything, is done about it.

What are Federal national mortgage association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC)? What is GNMA and Sallie Mae?

Fannie Mae and Freddie Mac are government-sponsored enterprise, not backed by US government. Buys/guarantees mortgages and packages /secures them to form mortgage backed securities GNMA: guarantees only securities backed by single family and multifamily loans Sallie Mae securitizes loans from other educ lenders, largest provider of educ loans (provides loans to education instituions), provides loans, purchases loans from lenders and provides financing to student loan agencies DOES NOT ISSUE SECURITIES THAT CAN BE REDEEMED TO PAY FOR COLLEGE EDUCATION

What are the lowest to highest interest rates? Fed funds, discount rate, broker's call rate, and prime rate... and what are they

Fed funds - rate at which banks loan to each other Discount rate - rate charged to banks on loans received from FRB's lending Broker's call rate (or call rate) - interest rate relative to which margin loans are quoted Prime rate - lowest interest rate charged to customers (used commercially)

Closing spot prices for foreign currencies are disseminated daily by the

Federal Reserve Board

What are firm quotes?

Firm quotes obligate the offering dealer to buy or sell the amount quoted.

What is a fixed annuity?

Fixed interest rate investments like government debt in general accounts, problem with inflation (as with all fixed-income)

How are stock orders adjusted for stock splits or stock dividends? Reverse split?

For a forward stock split / dividend order is adjusted by decreasing share price and increasing # of shares Reverse split - orders for a stock are cancelled

How do you write a covered put? What is the margin requirement for Sell short 100 shares of XYZ at 75 and writing 1 XYZ March 70 put at 3?

For a put to be considered covered: Deposit with the broker-dealer cash that is equal to the aggregate strike price Deliver a letter that is issued by a bank guaranteeing that cash equal to the aggregate strike price is on deposit Be short the underlying security Own a put that has the same or higher strike price and same or later expiration Short sale at 75 for 100 shares = 7500 * .5 = 3750 Write a put at 3 = 300 So required cash deposit = 3750 - 300 = 3450

How do you write a covered call? What is the margin requirement to buy 100 shares at 58 and write 1 ABC October 60 call at 2?

For call to be covered: Need to own underlying stock Own securities that are convertible into stock Own a long call that has the same or lower strike price and the same or later expiration as the one written PRODUCE ESCROW RECEIPT to show that stock is on deposit at a bank and can be delivered if exercised Buy 100 shares at 58 = 58 * 100 * .5 = 2900 Write call at 2 = 100 * 2 = 200 So total required deposit = 2900 - 200

What adjustments are made for cash dividends?

For cash dividends, only orders that are entered below the market will have their price reduced by the amount of the dividend or enough to cover the full dividend. These are: Buy Limit Sell Stop Sell stop-limit

When looking at a newspaper listing for foreign currency options, the spot prices for the underlying foreign currencies are quoted in:

For foreign currency options, spot prices are quoted in U.S. TERMS (the cost in U.S. dollars to purchase one unit of the foreign currency). All of the spot prices are quoted in cents per unit except the Japanese yen (1/100th cent per unit).

What happens when you have construction for a partnership and muni bond?

For partnership - mostly capital appreciation, but some cash flow if the properties are leased to tenants Muni bond - probably a revenue bond b/c can derive income from leased out property

When do foreign currency transactions settle?

Foreign currency transactions may settle on a spot or forward basis. Spot transactions settle in two business days from the trade date. In a forward transaction, the exchange rate is established on the trade date but settlement occurs in more than two business days Spot transaction refers to an exchange of currencies at the prevailing market rate

What is funded debt?

Funded debt is corporate debt with a maturity of one year or more

What debt instrument does not pay interest semiannually?

GNMA certificates - b/c underlying mortgages that serve as collateral pay interest monthly

What are general obligation bonds?

General obligation bonds are debt instruments issued by states and local governments to raise funds for public works What makes general obligation bonds (or GO bonds for short) unique is that they are backed by the full faith and credit of the issuing municipality. This means that the municipality commits its full resources to paying bondholders, including general taxation and the ability to raise more funds through credit (lower yield than revenue bonds) The ability to back up bond payments with tax funds is what makes GO bonds distinct from revenue bonds, which are repaid using the revenue generated by the specific project the bonds are issued to fund (fees from a public parking garage, for example). GO bonds give municipalities a tool to raise funds for projects that will not provide direct sources of revenue--roads and bridges, parks and equipment, and the like. As a result, GO bonds are typically used to fund projects that will serve the entire community; revenue bonds, on the other hand, are used to fund projects that will serve specific populations, who provide revenue to repay the debt through user fees and use taxes. An increasing population trend and a mixture of diverse businesses (both new and established) are positive demographic indicators that reinforce the quality of general obligation issues. User fees are generally associated with revenue bond issuers.

In a limited partnership, a general partner's minimum participation in profits and losses is:

General partner must have at least a 1% participation in profits and losses for a business to maintain limited partnership status.

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.

What are terms of revenue bond? Are they likely to default?

Generally, revenue bonds mature in 20 to 30 years and are issued in $5,000 units. Some revenue bonds have staggered maturity dates and do not mature at the same time (these are known as serial bonds). Unlike general obligation bonds, which are backed by the full faith and credit of the municipality, revenue bonds carry a higher risk of default.

Reports have been released discussing the instability of the Japanese economy. Imports from the U.S. have been decreasing. The rate of inflation in the U.S. has dropped and the U.S. GDP has increased.

Given this information, it appears the value of the Japanese yen is decreasing and the value of the U.S. dollar is strengthening. If imports are decreasing, then US dollars is getting stronger... Countries weaken currency (depreciate, value goes down) to increase imports Inflation dropping in US = dollar growing stronger

What is a good delivery for a municipal bond?

Good delivery for municipal bonds, unless otherwise specified, requires delivery of bonds that have not been called and have an imprinted or attached legal opinion. The bonds may be in bearer or registered form. Bearer bonds may be delivered in $1,000 or $5,000 denominations. If delivery of registered bonds is expected, they must be endorsed properly and in any denomination from $1,000 to a maximum of $100,000, in $1,000 increments.

How are government bonds taxed? How are munis taxed?

Government bonds taxed only federally; munis only taxed at state / local level

A customer owns a mutual fund that invests primarily in foreign securities. What will be reported concerning tax treatment of interest / dividends?

Gross amount of interest and dividends AND Amount of tax withheld by the foreign government

What is the difference between gross and net revenue pledge?

Gross revenue: debt service is first item paid Net revenue: debt service is first item paid AFTER OPERATING AND MAINTENANCE EXPENSES

What must a customer be willing to lose if he or she signs up for a moderate aggressive / aggressive fund?

He or she must be willing to accept high risk and high volatility with a possible loss to her initial principal in exchange for higher returns

Where are the securities of a margin account held?

Held at the brokerage firm in street name (not by the customer)

If a RR gets a second job, who must he inform?

His employer

So if margin account is restricted (CMV goes to 16k, Debit is 10k, and equity is 6k), and I purchase 10k stock, what must I do?

I must put in at least 5k cash. Therefore CMV would be 26k, debit 15k (increase of 5k loan + 5k cash) and equity is 11k... SMA is the same as before (doesn't go negative)

If you are given quarterly EPS, what do you need to do?

Need to multiply by 4 to get yearly EPS to find PE ratio

When can IRA withdraws begin? what does catch-up provision start?

IRA withdrawals may begin at any age, but a penalty may be assessed if withdrawals begin prior to age 59 1/2 (10% penalty). Withdrawals in traditional IRAs must begin by age 70 1/2. There is no required minimum distribution (RMD) for Roth IRAs. Catch-up provision starts for individuals age over 50 (additional $1k for IRA and $5.5k for 401k)

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.

How much can a client borrow if the client is long and short an equal number of shares of the same security?

If a client is long and short an equal number of shares of the same security, the maintenance requirement is equal to 5% of the long position. The maintenance requirement is equal to $4,000 (5% of $80,000). Therefore, the client is permitted to borrow 95% of $80,000, or $76,000.

A customer does not have a discretionary account with his brokerage firm. The firm may decide which of the following factors for the customer?

If a customer indicates the specific stock and amount that he wishes to buy or sell, the registered representative is permitted to choose the time and price of execution. This would not be considered a discretionary order and written trading authorization would not be necessary.

What is the carrying firm and receiving firm for broker dealers?

If a customer wants to transfer an account to another broker-dealer, she must sign a transfer request. The firm where the client has the existing account is known as the carrying firm and the new firm is known as the receiving firm. According to SRO rules, the transfer of a customer account must be completed by the carrying party within three business days of validation of the transfer instructions. The carrying firm must either validate the instructions or take exception within one business day.

How long is the quiet period before the IPO? What is the quiet period for a secondary offering? How about if it's a part of the syndicate?

If a firm is involved in an underwriting of an initial public offering and is the manager or comanager, it must maintain a quiet period of 40 days following an IPO or 10 days following a secondary offering. During this time, the firm may not issue research reports on its investment banking clients' stock. If the firm was a syndicate member or selling group member, the firm would need to wait 25 days.

What is an underwriter involved in? What is a sponsor involved in the sale of? Does the 5% mark-up apply?

If a member was acting as an underwriter, the firm would be involved in a new issue and, if acting as a sponsor would be involved in the sale of a mutual fund. Since these transactions require a prospectus, they would not be covered by the 5% Markup Policy.

What are the typical underwriting processes for GO and revenue bonds?

If a municipality appoints an underwriter to offer a new issue, it is a negotiated underwriting. This type of underwriting is used for Revenue bonds. General obligation bonds are usually awarded through competitive bidding whereby an issuer invites bids from potential underwriters and gives the deal to the firm offering the lowest net interest cost to the issuer.

What happens if a trade is executed in the wrong account to an error on the part of the RR?

If a trade is executed in the wrong account due to an error on the part of the registered representative, the best course of action is to cancel the trade and reenter it to the correct account. This action must be approved by a registered principal or supervisor.

What is a cancel and rebill and when does it happen?

If a transaction is executed but the wrong account is used, the error can be corrected without placing a new order. This is done by transferring the transaction to the correct account number with the permission of a registered principal. This transfer process is sometimes referred to as a cancel and rebill. In some cases, an error is made using the correct account number for the customer but the wrong account (e.g., a margin account instead of an IRA account). The same process of cancel and rebill is also used to correct this situation.

What happens if the status of your order is still unfilled or partially executed?

If it's day order, unfilled balance will be canceled at the end of day; if GTC, then balance will be rolled over to the next trading day.

How do you determine if its a bear or bull spread?

If no premium given, first figure out which premium is higher... For call - lower strike price; for put - higher strike price Bull if you buy call (lowest strike price) and you sell put (highest strike price) Bear if you sell call (lowest strike price) and buy put (highest strike price)

What is the total contribution check amount for a MFP?

If that were the case, the underwriting ban would have been triggered since the contribution amount exceeds $250 There is no limit if the MFP's spouse writes a check from his personal account, rather than from a joint checking account.

What happens if the CUSIP numbers are not legible on bonds?

If the CUSIP numbers are not legible, the bonds are still in good deliverable form. CUSIP numbers are used to identify securities and to distinguish them from other securities of the same issue.

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).

When is the yield higher for a bond - if it can be amortized over a longer period or shorter?

If the bond is held to maturity, the investor will be able to amortize the premium over a longer period, thereby realizing a higher yield. If the bond is called in ten years, the premium is amortized over half the time, resulting in a lower yield. If called sooner - yield is lower than called at maturity It is important to note that rules require a firm to disclose to a customer the lowest possible yield that the customer can realize. On a premium bond (as in this example), the lowest yield will result from the bond being called at par in the shortest period.

How are options taxed when thinking about strike price?

If the cost basis of stock is 4000 and you paid 700 premium for a 5000 strike price option Then your gain is 300 (5000-700) - 4000 = 300

When does the customer have to return the options agreement?

If the customer (of the registered representative) does not return the options agreement within 15 days of the approval of the account, the customer (registered representative) is permitted only to close out existing positions (cannot open new positions, but r.r. cannot liquidate account). Since the account was approved on October 1, the customer must sign the options agreement and return it to the firm by October 16. As of October 16, the customer may only open new options positions after the signed form is returned to the firm.

What is a restricted margin account?

If the equity in a margin account drops below the Regulation T (or house) requirement, the account becomes restricted. But not enough for a margin call.

The federal tax exemption for interest earned on an industrial revenue bond is NOT available if the: And who is the sole backer of these bonds?

If the holder of an industrial revenue bond is a substantial user of the facility, then the federal tax exemption on the interest earned does not apply. The corporation that uses the facility that was built by the industrial development revenue bond becomes the party that is backing the bonds. The credit rating of these bonds is dependent on that corporation, not on the municipality issuing the bonds.

What must happen if RR makes a recommendation for variable annuity and it is purchased?

If the purchase of a variable annuity is made after a recommendation by a registered representative, several steps must be taken before the application is submitted to the issuing insurance company RR must DOCUMENT AND SIGN the recommendation before forwarding the application to the Office of Supervisory Jurisdiction (OSJ) of the member firm. The principal at the OSJ reviews the application to determine suitability. The principal must approve or reject the application within SEVEN BUSINESS DAYS of receipt and must document and sign the approval or rejection.

What orders can a DMM hold on his book?

If the question asked which orders may be accepted and placed on his book, the answer would be open (GTC) and day orders only. A DMM may accept a market order but must execute it immediately and may not place it in his book.

What is a married put?

If the stock and the put are purchased on the same day, that is termed a married put. In that case, the price of the put will be added to the price of the stock to arrive at a cost basis for the entire position. So if stock price > cost basis, then profit When the put expires, there will not be a taxable event since the stock must be sold to trigger a capital gain or loss. The purchase of the put will create a hedge by allowing the investor to sell the stock at the strike price, thereby reducing a loss. There is still potential for the stock to rise and for the customer to achieve large gains.

What happens if the tax status of an issuer changes on a muni bond?

If the tax status of an issuer is in doubt at the time of issuance, there is usually a provision requiring that the issue be called if the tax status of the issuer changes and the bonds become taxable

An RR sees that a CMO is yielding 5.95% while the comparable Treasury is yielding 5.10%. This means that:

If the yield on a CMO is 85 basis points higher (5.95 - 5.10) than a comparably maturing Treasury security, the CMO provides a yield pick-up or higher yield of 85 basis points.

How would you be bullish on bonds?

If you anticipate a decrease in interest rates

What is a conflict of interest in a real estate limited partnership?

If you borrow from the partnership If you own or lease property adjacent to the property of the partnership

What happens in options retail communications and what must they mention?

If you deliver options retail communication WITH Recommendation, YOU MUST DELIVER AN OCC RISK DISCLOSURE DOCUMENT BEFORE OR WHEN YOU SEND No recommendation - does not need an OCC disclosure Newspapers, magazines, radio, telephone messages, television, newsletters, sales material, and research reports are ways to advertise about options. They all must mention the risks involved with options and be in good taste, as well as adhere to generally accepted standards of truthfulness.

How do you open cash account?

Need client's name, address, legal age to sign contract, name of RR and signature of principal don't need signature of client Need good faith effort to find suitability, relationships / members to firm, name / address of firm

What happens in periods of easy money?

In periods of easy money, there is availability of money. Therefore, interest rates will decline or be lower. In periods of easy money, bonds of similar quality generally will have short-term yields lower than long-term yields. Both short-term and long-term yields will be below normal. This situation creates a positively sloped yield curve where yields rise from short to long term. When interest rates have increased due to a tight monetary policy, the yield curve may become inverted, causing short-term rates to be higher than long-term rates. Three-month Treasury bills, having the shortest maturity, would have the highest yield. If the premise of the question was an easy money policy and a normal yield curve, the correct answer would be choice (30 year treasury bonds)

How does one contribute to a 401k? Is the account tax-deferred? Do employers have to match contributions?

In a 401(k) plan, an employee can usually make a pretax contribution in the plan and reduce taxable income. Employee contributions and growth in the account are tax-deferred. Employers are not required to match contributions, but may do so.

In a custodian account, who determines when the minor takes control of the account?

In a custodian account, the minor would take control of the account when the child reaches the age of majority. This is determined by the state in which the minor is a resident. This is part of the Uniform Transfers to Minors Act (UTMA). Where the account is being held is not relevant.

What is a divided account (Western vs. Eastern account)?

In a divided account (Western account), the member is responsible for its own participation in the syndicate. If any bonds remain unsold, it is the responsibility of that member. In an undivided or Eastern account, any unsold bonds are the responsibility of the entire syndicate. Each member would then be liable for the same proportion as his original participation.

What happens when you sell securities and your account is restricted? Jan Jones has a margin account with a market value of $8,000 and a debit of $4,200. She would like to withdraw $4,000 of the securities and deposit other securities to satisfy the retention requirement. What dollar value of securities must she deposit?

In a restricted account, when Jan sells securities, she must apply at least half the proceeds ($2,000) towards her debit balance. She may withdraw the entire sale only if she pays cash equal to half the proceeds of the sale ($2,000). Alternatively, she can deposit marginable securities for twice the amount of cash required ($4,000 - amount sold).

What is a reverse merger?

In a reverse merger, a private company buys a public company with the acquirer's shareholders swapping their shares for a majority stake in the publicly traded shell corporation. This technique allows a private company to obtain publicly listed status quickly, and to avoid much of the regulatory expense incurred with an IPO.

What does adding additional deposits to the separate account do?

In a variable annuity, as investors add additional deposits to the separate account, the value of their investment will rise through the purchase of additional accumulation units. If the account performance is positive, the value of each accumulation unit will rise. The AIR is important in valuing a variable annuity only during the annuity (payout) period.

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 holding a security in street name?

In street name: A brokerage account where the customer's securities and assets are held under the name of the brokerage firm, rather than the name of the individual who purchased the security or asset. Although the name on the certificate is not that of the individual, they are still listed as the real and beneficial owner and have the rights associated with the security. It is more convenient for brokers to hold securities in street name due to the complexity of tracking each stock certificate to each individual. Almost all brokers hold securities electronically and all securities in a brokers name comprise their inventory. Any time a client needs to buy or sell stocks, the broker is readily able to allocate a portion of their inventory as required. The only requirement for holding securities in street name is that they must be segregated.

Where is bond counsel's legal opinion? and what does it say

In the official statement. It says bond is the legal debt of the issuer and confirms the bond's tax-exempt status.

Who does AMT affect the most?

In theory, this is true for all taxpayers but, in reality, the AMT is only an issue for higher income taxpayers or those with special tax preference items on their returns. When calculating the alternative minimum tax, certain items may need to be included in taxable income that normally are not. One of these items is the interest on many private activity bonds. Therefore, a taxpayer subject to the AMT may lose the tax exemption on these bonds. Since this is a disadvantage, these bonds generally trade with higher yields than regular municipal bonds to reflect that the interest received might be taxable.

What does the IRS assume in terms of stock moving in and out?

In this question, the investor has two positions in ABC stock and each position was purchased at different times and at different prices. When an investor sells a portion of his holdings, unless his sell order ticket identifies the specific shares that he is selling, the IRS will assume that first-in, first-out (FIFO) will be the method to be used. Since the investor did not identify the shares to be sold, it is the first shares that were purchased in March at $20 that were sold. Therefore, since the shares were held for more than one year, the investor will report a $5,000 long-term capital gain. If held less than a year, then it's a short-term capital gain taxed at ordinary

What is phantom income?

Income paid to a taxpayer during the tax year that is not constructively received at the taxpayer's end. Phantom income is not terribly common, but does manifest itself in such investments as limited partnerships, where the earnings are taxed but not received, and zero-coupon bonds, which are issued at a discount and mature at par. The interest payments for zeros are credited to the taxpayer but no check is actually cut for them. The bondholder effectively receives the payments at maturity, when the bond is redeemed at the higher par value.

When do you incur 10% penalty for IRA?

Incur if you withdraw early, but exempt when: there is death (beneficiary can take without penalty) Disability First time home withdraw (10k) Qualifiyng education expense

Who can write a call option?

Individual stockholders may write calls on stock they own, regardless of their position as an insider. Trustees of pension funds are permitted by ERISA to write covered calls provided the strategy meets the objectives of the fund. Corporations may write calls covered by stock of other companies. Any entity is permitted to write a call option except the corporation itself.

What is the maximum total underwriting compensation of the gross proceeds of the offering in a limited partnership?

Industry rules allow a maximum total compensation of 10% of the gross proceeds of the offering in a limited partnership. This includes all items of compensation including trailing commissions. The maximum underwriting compensation for selling partnership units in a public offering is 10%. This is based on the gross dollar amount of the units sold. The 10% limit applies to all compensation, regardless of the source, if it is in connection with the offering.

What is equivalent to your initial deposit?

Initial equity requirement

In an partnership, if Mr. Smith opened a cash account for the partnership, but died, what would the firm do?

Insurance partnership: If Mr. Smith opened cash account for the partnership but died, the firm would freeze the assets of the account. The firm would then await the proper legal documents needed to release the assets.

What is interpositioning?

Interpositioning occurs when a broker-dealer, executing an order for a customer, places another broker-dealer between itself and the market. This is generally prohibited. The unlawful practice of adding an extra broker/dealer as a principal on a trade, even if no service is provided. Typically, interpositioning is done as part of a mutual benefit strategy, sending commissions to the broker/dealer in exchange for referrals or other cash profit. This type of behavior occurs at the upper levels of trade between specialists and broker/dealers, hedge funds or other institutional accounts.

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

How are investment advisers comepnsated?

Investment advisers are often compensated based on a percentage of assets under management. For example, mutual fund managers are usually compensated in this way.

What are investment companies?

Investment companies include variable insurance products, mutual funds, closed-end funds, unit investment trusts (UITs), and exchange-traded funds (ETFs).

What are DPPs?

Investments and no control (management) in bond or DPP (direct participation program) investments. The major disadvantage of a DPP is the lack of liquidity, meaning that the investor cannot easily sell his portion of ownership The largest deduction in a real estate program is generally depreciation. DPP: A business venture designed to let investors participate directly in the cash flow and tax benefits of the underlying investment. DPPs are generally passive investments that invest in real estate or energy-related ventures. DPPs are usually organized as a limited partnership, a subchapter S corporation or a general partnership. Although they have been generally used as tax shelters, tax legislation has severely curtailed their tax benefits.

What happens when a guy dies with a variable annuity?

It becomes part of his estate for tax purposes

What is true about stopping stock?

It's PERMITTED ONLY FOR PUBLIC ORDERS and is done by the DMM, will guarantee a price for the order ("basically guarantee an excecution price while trying to find improved or better price for the public customer"). Does not require permission from exchange official

What are joint accounts for?

Joint accounts are for individuals; a custodian account is not considered a joint account

What is Keynesian economic Theory / supply-side econoomics / monetary theory?

Keynesian economic theory looks at the demand side of the marketplace. It states that government intervention in the marketplace (by using such measures as expenditure programs) is necessary for controlling the economy. Supply-side economics states that the government should reduce marginal tax rates and the size of government to promote economic growth. Monetary theory looks to increase or decrease the money supply in order to control the economy.

What is the intrastate exemption and what does it apply to?

Keystone is eligible to offer shares in Pennsylvania (PA) under the intrastate exemption (Rule 147) if 80% of its assets are located in PA, 80% of its revenues are derived from PA sources, and 80% of the proceeds from the sale are used in PA. In addition, to qualify for the exemption, 100% of the purchasers of the offering must be residents of PA.

Knowing a client's tax bracket is particularly useful when evaluating the suitability of which type of investment?

Knowing a client's tax bracket is particularly useful when evaluating the suitability of municipal bonds. The interest on municipal bonds is typically tax-exempt, which is less of an advantage if the client is in a low tax bracket.

What asset cannot be depreciated?

Land

What is a letter of intent in a mutual fund?

Letter of intent enables an investor to qualify for a discount made avaialbe through breakpoints without initially depositing the entire amount required. A letter of intent may be backdated up to 90 days and is valid for 13 months. Letters are non-binding... if you fail to pay, then you will just be charged a higher fee

How do limit orders get onto a DMM's book?

Limit orders are placed as either day or GTC orders and the unexecuted portions are placed on the designated market maker's book.

What are long-term brokered CDs

Long-term brokered CDs are not considered highly liquid since there is no active secondary market. Like most fixed-income securities they are subject to interest-rate risk. In addition, they may be callable and have other features such as floating rates. FDIC insurance may not apply to long-term CDs sold by broker-dealers if the face amount exceeds $250,000.

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 the biggest risk of long-term, high-grade bonds?

Long-term, high-grade bonds are relatively safe investments, but do have purchasing-power risk. Because the amount of interest income is fixed, the purchasing power of the interest income may decline over the long term because of inflation. A rise in inflation reduces the amount of goods and services that can be purchased with the fixed amount of dollars.

How quickly can you issue research reports if you are the manager of the underwriting? If you are just a member of the underwriting syndicate?

Manager of the underwriter - 40 days Member of syndicate - 25 days

When do you need a margin agreement? When do you need an option agreement?

Need margin agreement for stock on margin, selling stock short, writing uncovered options Options agreement - any type of option being used

Who enforces the MSRB rules?

MSRB only designs rules, does not enforce them. • The SEC or FINRA for broker-dealers • Comptroller of the currency for federal banks • The FRB for state banks that are members of the FRB • The FDIC for member banks of the FDIC

Who does MSRB place restrictions on opening an account for?

MSRB rules only place restrictions on opening an account for an employee of another MSRB member firm. When opening an account for an employee of another MSRB member firm, the employer must be notified and duplicate confirmations of all trades must be sent to the employer.

What do MSRB rules require a municipal security principal to do?

MSRB rules require a municipal securities principal to APPROVE ALL all transactions in municipal securities.

What must a municipal securities principal do?

MSRB rules require a municipal securities principal to approve all the choices given. In addition, the principal must approve all transactions and must frequently review all discretionary accounts. I. Memos in response to customer complaints II. The opening of accounts III. Advertisements to be used for a seminar IV. Correspondence to customers V. All municipal transactions DOES NOT NEED TO APPROVE OFFICIAL STATEMENT

What does MSRB require in a confirmation?

MSRB rules require that a confirmation be sent to a customer at or before the completion of the transaction (settlement date). The confirmation must include whether the customer purchased or sold, the par amount, and a complete description of the securities, including the coupon and the maturity date. Any pertinent call feature must be shown as well as the principal amount, accrued interest, and the total amount of the transaction. The broker-dealer must disclose if it acted as principal or agent and, if acting as an agent, the amount of the commission must be disclosed. Ratings and denominations are not included on the confirmation.

What does MSRB require of the official statement? When does a muni need to send a confirmation?

MSRB rules require that a copy of the official statement be sent to each purchaser of a new issue. A confirmation must be sent on every transaction whether on a new issue or on a secondary market trade.

What does MSRB require transactions be executed at?

MSRB rules require that transactions be executed at a price that is fair and reasonable.

What is a subject or nominal quote? Firm quote?

MSRB rules state that a dealer who does not wish to buy or sell securities based on a quote given, must identify the quote as a subject or nominal quote. Such quotes can be given for informational purposes only. MSRB rules require that any quote be bona fide (firm at the time given). Nominal or subject quotes are permitted if they are identified as such at the time given Firm quote: price quote on security made by a dealer or market maker, that guarantees a bid or ask price up to the amount quoted. The dealer that gave the firm quote must do the trade at par.

What is the maintenance requirement? What if you are below reg T but above maintenance requirement?

Maintenance requirement is 25% of market value or long account - if account goes below, then margin call will be made If you are below reg T but above maintenance, account is restricted (Reg T doesn't make you make cash deposit but it does require him to deposit at least 50% of the purchase of any more securities)

What call feature do you use to price a bond?

Make-whole call or whatever the value of call is Do not use catastrophe call or sinking fund call When pricing a bond, only a call feature that allows the issuer to call the entire issue is used.

What kind of securities trade without accrued interest? How about on the secondary market?

Many money-market securities such as Treasury bills and bankers' acceptances trade at a discount and are, therefore, purchased without paying accrued interest. Zero-coupon bonds (e.g., Treasury STRIPS) do not pay periodic interest and are traded without accrued interest. EVEN TRADE WITHOUT ACCRUED INTEREST ON THE SECONDARY MARKET

What are the maintenance requirements of leveraged ETFs?

Margin requirement is multiplying the leverage factor by the standard maintenance requirement 2 (2x long gold index ETF) * 25% (maintenance for long position)

When are margin requirements greater than normal?

Margin requirements established by the FRB may be increased by broker-dealers in the form of in-house rules. FRB rules apply to both retail and institutional investors and may not be replaced by SRO rules.

How do you calculate market cap?

Market cap = Total outstanding shares (issued - treasury) * stock price

Do variable annuities give you a guaranteed rate of return?

No, you would have to invest in an equity-indexed annuity.

What are marketwide trading halts?

Marketwide trading halts are based on the S&P 500 Index and are calculated daily (not monthly). A trading halt on one exchange applies to all exchanges that trade the same security. A Level 1 Market Decline (7%) and a Level 2 Market Decline (13%) will halt trading for 15 minutes. For a Level 3 Market Decline (20%), trading will be halted for the remainder of the day

What is marking-to-the-market?

Marking-to-the-market refers to adjusting the contract price to the current market price of an open contract for purposes of determining if additional cash is required Done daily usually for maring accounts

Can a spouse trade in her spouse's personal account?

No.

According to MSRB rules, what must a secondary market joint account do?

Members of a secondary market joint account must publish the same offering price.

Can minors open accounts with broker-dealers?

Minors are not permitted to open accounts with broker-dealers since they are not legally responsible and could reject certain transactions once they reach the age of majority. The age of majority is actually determined by the state. In most states, the age of majority is age 18.

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. BENEFITS ARE SAFETY AND LIQUIDITY Dividends are usually computed DAILY and credited MONTHLY. Investors may elect to reinvest the dividends each month, thereby buying more shares.

How long must investment companies send financial statements to shareholders?

Monthly

What is the difference between Moody and S&P / Fitch ratings?

Moody: Aaa S&P / Fitch: AAA

What is a mortgage-backed security?

Mortgage-backed securities (MBS) may be issued by a U.S. government agency, such as the Government National Mortgage Association (GNMA or Ginne Mae), or a government-sponsored enterprise (GSE), such as the Federal National Mortgage Association (FNMA or Fannie Mae) or the Federal Home Loan Mortgage Association (FHLMC or Freddie Mac). The securities issued by these three entities are commonly referred to as agency securities and receive high ratings (e.g., AAA). A collateralized mortgage obligation (CMO) is an example of this form of MBS. Mortgage-backed securities are also issued by financial institutions such as commercial banks, investment banks, and home builders. These securities are referred to as private label MBS and may contain some agency securities, however, they typically contain other types of mortgage loans that are not agency securities. A private label MBS is not an obligation of the U.S. government or any GSE and its credit rating is assigned by an independent credit agency. A private label MBS has a higher degree of credit risk and is generally not given a AAA rating.

Can you sell short in cash account?

No.

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.

What is the most volatile kind of preferred?

Most volatile is convertible preferred b/c it has characteristics of equity

What securities can trade OTC?

Muni bonds, treasury bonds, treasury bills, corporate bonds

Munis bought at OID are tax...? Us govies bought at OID? What if muni bought in secondary market at discount?

Muni: TAX-FREE if HELD TO MATURITY, purchased OID (considered interest income - so tax-free federally, not capital gain) - The interest (accretion) on an out-of-state muni security is exempt from federal tax, but subject to state and local income tax. Tax rate based on where customer maintains primary residence If a municipal bond is purchased at a discount in the secondary market and held to maturity, there will be reportable taxable income. The discount is TAXED AT ORDINARY INCOME, not a capital gain. The investor may pay the tax each year or elect to report the entire amount at maturity. US govies / Corporate: taxed for accretion as interest income each year

What must a muni bond confirmation disclose?

Municipal bond confirmation must disclose certain tax information such as whether the bonds are subject to the alternative minimum tax (AMT), whether the bonds are issued as an original issue discount security, and whether the bonds are subject to federal income tax. (DOESN'T NEEDT TO DISCLOSE STATE INCOME TAX)

What does a muni bond insurance guarantee?

Municipal bond insurance guarantees the timely payment of principal and interest. If a municipal bond has 10 years to maturity, the insurance company is obligated to make 20 interest payments as they come due and a lump sum at maturity. TIMELY PAYMENT OF PRINCIPAL AND INTEREST

How can muni bond investors diversify some risk?

Municipal bond investors can obtain reduced interest-rate risk by investing in issues with different maturities. Bonds with short-term maturities will only experience a small decline in price if the general level of interest rates increases. Although most municipal bonds are exempt from federal income tax, they are not exempt from state income tax unless the owner is a resident of the state that issued the bonds, and the state elects not to tax the purchaser of the bond.

What are muni bond swaps used for?

Municipal bond swaps may be executed to establish a loss, increase cash flow (increase income from larger coupon), improve maturities, improve yield, and improve quality.

Municipal bearer bonds that are in default of interest, trade:

Municipal bonds that are in default, trade flat (without accrued interest) and must be delivered with all unpaid coupons attached. If the bonds begin paying interest, the present holder is entitled to the past interest payments.

Are MFPs allowed to make political contributions?

Municipal finance professionals (MFPs) are allowed to make political contributions of up to $250 per person to candidates for whom they are permitted to vote. Any contribution made to a candidate for whom they are not entitled to vote would be a violation. For example, if you are an MFP and a resident of New Jersey, you may not contribute to an election campaign for the governor of New York.

What are mutual funds required to disclose in the prospectus? What is the main fee calculation for mutual funds?

Mutual funds are required to disclose in the front of a prospectus a standardized fee table of all its fees. The fee table must include the expense ratio, which is the percentage of a fund's assets that is used to pay its operating costs. It is determined by dividing total expenses by the average net assets in the portfolio.

What is different about a mutual fund and its ex-dividend date than normal?

Mutual funds sell ex-dividend whenever the fund or its principal underwriter (sponsor) determines. The ex-dividend date for a mutual fund is usually the same day as the record date.

Do variable annuities or mutual funds pay taxes on dividends?

Mutual funds yes at ordinary income, variable annuities no b/c they are tax deferred

Does the name of the bond counsel need to be on a customer confirmation for muni bond?

NO

Can options that are bought be marginable? If you want to buy 10 XYZ March 40 calls at 3, how much do you have to make as a deposit?

NO, options that are bought are not marginable; Must pay whole cost - so 10*3*100 = $3k FULL PURCHASE PRICE = PREMIUM must be deposited

Are there listed muni bonds?

NO, they are all traded OTC

What does a person with a credit spread want?

NUC - narrow, unexercise, credit Credit = more money coming in

What are negotiable CDs and where are they traded?

Negotiable CDs are traded in the secondary market in minimum denominations of $100,000 but typically trade in $1,000,000 denominations. They are issued by commercial banks and are secured only by the bank's credit. Maturities of less than one year are common but there is no time limit.

Key words for Securities Act of 1933

New Issues / Prospectus Issue stop orders (due to fraudulent activity) SEC enforces SA 1933 Truth in Securities Act (Fair disclosure) Rule 144 / 144A Regulation S (A safe harbor rule that defines when an offering of securities would be deemed to come to rest abroad so as no to be subject to the registration obligations) Registration requirements (for equity and debt new issuances NOT MUNI) QIB

Does a customer who provides an IOI have an obligation to buy securities?

No

Are cash basis and cash trade the same?

No - cash basis / cash trade = settle same day Cash account = regular way settlement = T + 3

If you have non-qualified annuity, does it have RMD and how is it taxed?

No RMD and it is A/T so only earnings portion taxed at ordinary income (don't pay on original principal)

What is variable annuity taxed at?

No capital gains, all ordinary... the whole thing is taxable because contributions were made pre-tax

Can broker-dealers give a discount to nonmember broker-dealers when selling investment shares?

No they may not.

Do munis need a prospectus?

No, because it is not registered w/ SEC

Does a RR need to let principal know about outside employment?

No, but RR must let notify employer

Does the r.r. need to know the customer's education background to open account?

No, but a reasonable attempt should be made to obtain all the other information when opening an account for customers

Are equities tax deferred? Then if somebody wants tax-deferred growth, willing to accept modest risk and is scared about inflation what is a good investment?

No, since the investor is concerned about inflationary risk, wants tax-deferred growth, and is willing to accept a moderate degree of risk to his initial investment, variable annuities are the most appropriate investment. If the investor did not want a tax-deferred investment with the same objectives, equities would be the most suitable choice.

What are orders like (not-held order, limit order, time-of-day order, at-the-opening order, discretionary order, immediate or cancel order, (fill or kill))?

Not-held order: A market or limit order that gives the broker or floor trader both time and price discretion to attempt to get the best possible price (must be executed by broker) and will not hold the RR responsible if she misses the market for a security. Limit order: order placed with a brokerage to buy or sell a set of number shares at SPECIFIC PRICE (PROBABLY MENTIONED IN ORDER) or better Not a market order, may not be executed if price is not Time-of-day order: order to buy or sell an asset that is placed at a specified time period during a trading session; enters the market at a predetermined minute and remains good until canceled At-the-opening order: An investor's directive to her broker or brokerage firm to buy or sell specified securities in her account at the very beginning of the trading day. If the order cannot be executed at the opening of the market, it will be canceled. Discretionary order: An order giving a broker the ability to decide when to buy/sell securities at the best possible price for the customer. Some discretionary orders place restrictive terms to limit the amount of discretion the broker has. Immediate or cancel order: An order to buy as much as possible must be executed immediately, Any portion of the order that is not immediately executed is cancelled.

If somebody wishes to remain anonymous when opening account, what must she have?

Number or symbol as long as the owner provides a written statement of ownership

Which TWO of the following securities will enable an investor to both receive interest income and have a maturity date allowing their principal to be returned in one lump sum? A municipal bond fund containing mostly revenue bonds Municipal bonds that are subject to the alternative minimum tax A closed-end fund containing municipal bonds of one state A portfolio of municipal bonds, some which have call provisions

ONLY BY INVESTING IN ACTUAL BONDS WILL AN INVESTOR BE ABLE TO HAVE HER PRINCIPAL RETURNED IN ONE LUMP SUM. One of the major differences between investing in actual bonds versus bond funds is that bonds will have a maturity date and bond funds will not mature. If a 20-year bond is purchased, 19 years later it will mature in one year. A 20-year bond fund will always have in its portfolio bonds that mature in approximately 20 years. In order for an investor to receive her principal with a bond fund, the investor is required to sell or redeem her shares of the fund.

Who makes the decision to stop the option from trading?

Officials of the exchange on which the options trade make the decision to stop trading the options.

What kind of partnership offers the greatest initial write-offs?

Oil and gas limited partnerships b/c they have significant initial write-offs due to intangible drilling costs and depletion allowances

What is the difference between an agent, a dealer, and a floor broker?

Only dealers can MAKE A MARKET, as to do so, it must trade from its own account. Agents facilitate trades for two different parties. Floor brokers execute trades on the floor of the exchange for clients.

What kind of income can you put into a IRA

Only earned income, bonuses, tips, commissions (not investment income)... alimony CANNOT use rental income

When would an investor sign a hypothecation and margin account for opening?

Only for margin account

What is the easiest tool for the FRB to regulate the amount of money and credit in the banking system?

Open market operations

What does the term open sale and open buy refer to?

Open sale refers to writer of a listed option (designation must be written on the order ticket) - contract ends through a closed buy Open buy refers to buying a listed option - contract ends through closed sell

What securities have loan value in margin account?

Option contracts (those with less than a year, basically not LEAPS) have no loan value and therefore may not be used as collateral in a margin account. The exception is LEAPS, which can be bought on margin and, therefore, have loan value. LEAPS are equity options that can have a maximum life of 39 months.

How quickly do option transactions settle? What is the REg T payment date?

Option transactions settle on the next business day between brokerage firms and the Options Clearing Corporation. According to Regulation T, payments for transactions in cash and margin accounts must be made by the customer within two business days following the regular-way settlement date. Since regular-way transactions settle in three business days, customers have five business days in which to pay for purchases. Therefore, while option transactions settle next day, the Reg T payment requirements are based on a regular-way transaction. Hence, customers have five business days in which to pay for option purchases.

What are options taxed at?

Options never taxed at ordinary income, always capital gain (either long or short)

Listed options are issued and guaranteed by:

Options that are listed on exchanges are issued and guaranteed by the Options Clearing Corporation. The exchange on which the option trades sets the terms of the option contract.

What happens when you buy government bonds at discount on secondary market in terms of taxation?

Other components of your return, however, may be taxable when the bonds are sold or mature. If you buy a bond for less than face value on the secondary market (known as a market discount) and you either hold it until maturity or sell it at a profit, that gain will be subject to federal and state taxes. Buying a bond at market discount is different than buying a bond at Original Issue Discount (OID). When a bond is sold or matures, gains resulting from purchasing a bond (how much accretion) at market discount are treated as capital gains while OID gains are treated as a type of income.

What is overlapping debt?

Overlapping debt: The financial obligations of one political jurisdiction that also falls partly on a nearby jurisdiction. (USUALLY ONLY FOR G.O BONDS)2.5 Overlapping debt is common in most states because states are divided into numerous jurisdictions for different tax purposes, such as building a new public school and building a new road. These different jurisdictions may each issue debt in the form of bonds and notes when they need to raise money to pay for these major expenses that are intended to serve all the residents of a political jurisdiction. Taxpayers are responsible for paying their share of the debt from each jurisdiction.

What is the highest rating Moody will assign to commercial paper?

P-1 (also called Prime 1) is the highest rating that Moody's will assign to commercial paper. Intermediate ratings are P-2 and P-3. Speculative commercial paper would receive a rating of NP (not prime).

What is participating preferred stock / cumulative preferred stock?

Participating preferred stock allows the owners to share in the extraordinary earnings of a company, "special dividend if the Company performs well" Essentially, participating preferred has a stated dividend, but these shareholders may receive more than that amount based on the profits of the issuing company Specific dividend is paid before any dividends are paid to common stock Cumulative preferred stock will add all unpaid dividends to a future payment if a cash dividend is to be paid to common shareholders o Common stock will pay only cash dividends if they are declared by the company s board of directors.

For a equity index annuity calculation, what is they key factor?

Participation rate

If you have losses in a limited partnership, what can you deduct those against?

Passive losses may only be deducted against passive gains, not against earned income.

How can a NYSE firm become delisted?

Reasons for delisting on the NYSE include low trading volume, bankruptcy, considerable declines in public interest in the security, or if the firm does not issue traditional common stock.

What is a pattern day trader?

Pattern day trader is a term defined by FINRA to describe a stock market trader who executes FOUR (4) (or more) day trades in 5 business days in a margin account. The minimum equity requirement for a pattern day trader is $25,000. Day-trading buying power is limited to four times the trader's maintenance margin excess, determined as of the close of the previous day.

What is preferred stock like? What is a 9% preferred stock?

Pays a fixed dividend so it's similar to debt and moves with interest rates... Pays a dividend on $100 par value so 9% preferred equals $9 dividend Dividend must be paid to preferred before common

What does client purchasing a security (not mutual fund)?

Pays for security: offer (ask) price + commission Sell security: Bid price - commission

What trades on OTC? What kind of market is it?

Penny stocks, otc equities include domestic and foreign equity issues, warrants, units, ADRs, DPPs. OTC is negotiated market that connects BROKER-DEALERS ELECTRONICALLY

Who is a transfer agent?

Performs record-keeping functions (issuing new shares, canceling) The transfer agent is responsible for issuing new certificates, cancelling old certificates, keeping a record of shareholders and the number of shares each owns, and handling problems that come about in cases of missing, lost, stolen, or mutilated securities.

What is painting the tape?

Persons who enter into transactions to increase volume, without ownership changing (you buy and sale same security), have engaged in painting the Tape. This is a manipulative act and is a violation.

What is front-running?

Placing proprietary orders (orders for the account of the RR or broker-dealer) ahead of customer orders is a prohibited practice that is referred to as front-running. An institutional buy order has the potential of moving the market price of a security higher. Having advance knowledge of the order would allow the broker-dealer to purchase the security or a derivative for that security prior to executing this order and profit when the market reacts to the institutional order. For example, analysts and brokers who buy up shares in a company just before the brokerage is about to recommended the stock as a strong buy are practicing front running. Another example is a broker who buys himself 200 shares in a stock just before his or her brokerage plans to buy a large block of 400,000 shares.

How do you hedge a diversifed portfolio? A one-industry portfolio?

Portfolio consisting of stocks from the same industry may be protected (hedged) against adverse market movements by using narrow-based index options. A narrow-based index gives a measurement of stocks in a particular industry or sector of the economy. A broad-based index option would be used to hedge a diversified stock portfolio.

What does it mean when a firm is position trading? What does position trader do?

Position trading is another term for a firm making a market in securities and trading for its own account to make a profit. Position trader is responsible for maintaining a broker-dealer's inventory as well as trading the firm's account.

Who can / cannot participate in rights offering?

Preferred stockholders are not permitted to participate in a rights offering. Only the common stockholders are permitted.

What is a discount bond priced to?

Priced to matuity

What happens if you want to have a faster registration than normal?

Private placement under Regulation D - (NO NEED FOR OFFERING DOCUMENT TO SEC), Intrastate offering under Rule 147 - (can sell to a non-resident after nine months) F1 registration under Rule 415, will usually be faster than a full registration, Regulation D and Rule 147 place various restrictions on resales, reducing the liquidity of the issue. A shelf registration under Rule 415 will satisfy all of XYZ Corporation's needs

When do regular way settlement for corporate securities settle?

Regular way settlement of corporate securities is three business days (but pay attention to what day it is)

A broker-dealer is underwriting an initial public offering (IPO) for a company that will be listed on the NYSE. The broker-dealer is required to deliver prospectuses:

Prospectus must continue to be delivered for 25 days after the effective date. The prospectus delivery requirement for an IPO that will not be listed on an exchange continues for 90 days after the deal closes.

How are REITs regulated? What must they receive when making a purchase?

REITs are regulated as securities under the Securities Act of 1933 (NOT UNDER INVESTMENT COMPANIES OF 1940). An investor purchasing a REIT in the primary market must receive a prospectus.

What is the difference between qualified vs. non-qualified dividend? Which one does the dividend get taxed at usually?

Qualified taxed at capital gains rate, ordinary at ordinary income Usually it is ordinary income.

When do sales break point on large purchases of mutual fund shares apply?

Quantity discounts are allowed only for individuals and individual entities such as corporations. Partnerships and investment clubs are not entitled to a quantity discount. Joint accounts normally do not qualify for breakpoints except in cases where there is a DEPENDENCY RELATIONSHIP in the account (e.g., husband and wife).

What is required minimum distribution and who does it apply to?

RMD is at a certain age you must begin making withdrawals For Trad IRA / 401k, 403B - subject to RMD, by Apr of 70.5 must begin takin minimum withdraws or be penalized

What must a RR do when telemarketing?

RR must disclose his name, contact information, and the purpose of the call. Not required to tell prospects how name was obtained

What's the order for opening an options account?

RR should know all the ESSENTIAL facts about a customer and determine suitability Customer's account has first been approved for option trading by the brokerage firm (depends on facts). Customer is then sent the Options Clearing Corporation risk disclosure document at or prior the time the account is approved for options trading. The registered options principal then approves the account for options trading. Orders may then be entered. Finally, the customer has 15 days from the time the account is approved for options trading to SIGN THE OPTIONS AGREEMENT

What are rate covenants?

Rate covenants insure that rates will increase in line with costs to insure proper revenues for the maintenance of the facility or project and payment of the debt service

What is raw land?

Raw land will satisfy an investor's need for an investment that has the potential for capital appreciation without producing currently taxable income. (MOST RISKY) However, raw land is not eligible for depreciation deductions or tax credits nor does it have periodic income.

What is a REIT?

Real estate investment trusts (REITs) offer investors a stable income based on the income produced by owning a diversified portfolio of properties and/or mortgages that charge rental income. Most REITs trade on an exchange, offering investors liquidity (it's a security so need prospectus) -> can get capital appreciation. Since investors usually purchase REITs for their high dividend yield, if interest rates increase, the value of their shares will usually decrease as other newly issued income earnings securities become more attractive. REITs do not pay tax on distributions (not taxed at corporate level, but TAXED AT INDIVIDUAL LEVEL @ ORDINARY INCOME) REITs must pay a minimum of 90% of their taxable income and the dividends received by investors are taxed at the same rate as ordinary income. They can be suitable for both retail and institutional investors. REITs have a secondary market so its like a closed-end fund (bought and sold on the market)

What is recapture?

Recapture is a situation where tax benefits previously taken should be paid back to the government. This is obviously not a benefit of a limited partnership. Downside to Limited partnership for DPP include recapture where the tax law requires you to recapture those depreciation deductions when you sell your investment by taxing that portion of the gain as ordinary income rather than capital gain

What is reclamation and rejection in terms of securities?

Reclamation is the process of returning securities that were previously accepted on the settlement date. Rejection is when the brokerage firm refuses delivery of the securities on the settlement date.

What happens to a margin account's debit balance when cash dividends are received / interest from bond / more cash?

Reduce debit, increase SMA dollar-for-dollar

What is refunding?

Refunding is used to lower interest expense on bonds through the issuance of new bonds at lower coupon rates. The proceeds of the new bond sale would be used to repurchase the already outstanding high-coupon bonds. Advance refunding means that proceeds from the sale of the new bond issue will be put in an escrow account to retire the existing bond issue. If a municipality wants to engage in advance refunding, as is the case in this example, the municipality will sell the new issue with the proceeds of the sale going into an escrow account containing U.S. government securities. The U.S. government securities would be purchased with a maturity date that coincides with the issue's call date. This allows the refunded issue to be retired using the proceeds from the matured government securities. When interest rates fall, a municipality may want to engage in advance refunding. In this case, the municipality will sell a new issue with the proceeds of the sale going into an escrow account containing U.S. government securities. Since the municipal bond has been escrowed to maturity, the U.S. government securities would be purchased with a maturity date that coincides with the maturity date of the municipal bonds.

Does Reg T require muni bonds to have margin requirements?

Reg T exempts municipal bonds, meaning the Fed makes no margin requirements, but the NYSE generally requires a 15%

When is the Reg T payment date?

Reg T payment date (within 2 business days following settlement)

What should the r.r. do if something has changed for the customer?

Registered representatives have a responsibility to update customer information periodically in case something has changed that would alter a customer's goals and objectives. Given that the customer has just experienced a financial windfall, the representative should check to see if the customer's investment objectives have changed before making any recommendations

What is Reg T requirement in short margin account? What is the minimum equity amount?

Regt T = 50% of SMV Minimum equity account is 30% of SMV

What is regulation FD?

Regulation FD (fair disclosure) applies to issuers of securities. Regulation FD requires that material, nonpublic information disclosed to analysts or other investors be made public. If the disclosure is intentional, the information must be simultaneously disclosed to the public. If the disclosure is unintentional, the public disclosure must be made within 24 hours. Form 8-K, filed with the SEC, is one method of meeting the public disclosure requirement.

What is restricted stock?

Restricted stock units - given to employees Unregistered shares of ownership in a corporation that are issued to corporate affiliates such as executives and directors. Restricted stock is nontransferable and must be traded in compliance with special SEC regulations. Also referred to as "letter stock" and "section 1244 stock," it typically becomes available for sale under a graded vesting schedule that lasts several years.

Do retail communications need be approved? How about Institutional communication? 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) Institutional communication does not have to be approved by a principal.

What is a revenue bond?

Revenue bond: A municipal bond supported by the revenue from a specific project, such as a toll bridge, highway or local stadium. Revenue bonds are municipal bonds that finance income-producing projects and are secured by a specified revenue source. Revenue bonds differ from general obligation bonds (GO bonds) that can be repaid through a variety of tax sources. Also called a municipal revenue bond. For example, if a revenue bond is issued to build a new toll road, the tolls that are collected from motorists who drive on the road would be used to pay off the bond (after the building expenses had been paid). A primary reason for using revenue bonds is that they allow the municipality to avoid reaching legislated debt limits. An agency that is run solely on tax dollars, such as a public school, cannot issue revenue bonds, since these entities would be unable to pay off the bond using revenues from the specific project

What happens when there is rising inflation

Rising inflation tends to have a negative impact on both the bond and stock markets. In the bond market, when there is rising inflation, bond investors look to trade out of fixed-income investments, which will have their returns eroded by rising consumer prices. This selling pressure negatively affects bond prices in the market. In the stock market, rising inflation often translates into an assumption that the Fed will raise interest rates to curb consumer borrowing and consumer demand. Rising rates should, in theory, lead to decreased economic activity and shrinking corporate earnings. This also tends to lead to some form of a sell-off and a falling stock market

What are STRIPS?

STRIPS - "separate trading of registered interest and principal securities" Fixed-income security sold at a significant discount to face value and offer no interest payment because they mature at par Have to pay federal income tax on bond accretion

What is the trading volume restriction for restricted / unregistered stock for Rule 144?

Rule 144 states that the insider may sell an amount equal to the average weekly volume of the previous FOUR weeks, or 1% of the outstanding shares, whichever is greater.

What is Rule 145?

Rule 145 applies to mergers, consolidations, reclassifications of securities, or transfers of corporate assets (spinoffs). Rule 145 requires a company to provide written disclosures (IN THE FORM OF A PROSPECTUS) to shareholders in connection with the previously listed corporate actions. Stock splits, dividends, and the resulting changes in par value are specifically exempted from filing under Rule 145.

When does cash settlement happen FOR BOTH BOUGHT OR SOLD?

SAME-DAY SETTLEMENT FOR BOTH BOUGHT AND SOLD

What does the SIPC do?

SIPC (Securities Investor Protection Corporation) provides protection for customer accounts in the event of a broker-dealer's failure. Nonprofit corporation (NOT GOVERNMENT AGENCY - created under Securities Investor Protection Act 1970) designed to protect the public (Funded by broker-dealers). Subject to SEC oversight but not a government agency Each account is covered for up to $500,000, of which $250,000 may be cash. SIPC does not insure creditors of the broker-dealer or the failed firm's own inventory account. (one cash, one margin = one account; one cash, one joint w/ wife = two account) If issuing bank declares bankruptcy, then FDIC will insure. Insures margin account but NOT COMMODITIES

What happens to SMA when stock declines?

SMA balance will never decrease because of market movements. SMA will only decrease when securities are purchased or cash withdrawn and the only restriction is that the additional purchases or withdrawals do not bring the account below the maintenance margin requirement.

What are SPDRS, QQQ, and Diamonds?

SPDRS, QQQ, and Diamonds are S&P, NASDAQ, and DJIA ETFs

What do SROs do for the market? What do specialists do?

SROs have rules designed to maintain a fair and equitable market and require that firms use reasonable diligence to provide customers with best execution. They do not have set commission schedules nor do they require that all firms trade for their own account. Specialists on the exchange must provide liquidity.

What happens when you: SS - 100 ABC @ 22 And S - 1 ABC 25 put @ 7

SS - 100 ABC @ 22 = (not 1100 b/c less than 4,000)... so need to put in 2000 - 700 =1300

How do you calculate sales charge %

Sales Charge % = (Public Offering Price - NAV) / POV

What is a savings bond?

Savings bonds are debt securities issued by the U.S. Department of the Treasury to help pay for the U.S. government's borrowing needs. U.S. savings bonds are considered one of the safest investments because they are backed by the full faith and credit of the U.S. government

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 is Commercial Paper?

Secured, short-term debt instrument issued by a corporation, typically for the financing working capital. Maturities on commercial paper are usually 270 DAYS. Commercial paper has a maximum maturity of 270 days in order to be exempt from the registration requirements of the Securities Act of 1933. Most commercial paper is purchased by institutional investors. The debt is usually issued at a discount, reflecting prevailing market interest rates. Secondary market for CP

Are securities from Puerto Rico/ commonwealth US exempt from tax?

Securities issued by Puerto Rico, through a special Act of Congress, are exempt from federal, state, and local taxes (triple-tax-exempt).

What happens when FOMC sells treasuries? What happens when FOMC purchases treasuries?

Securities used are Treasury bills. FOMC wants to influence money supply. Purchase treasuries: increase money supply Sell treasuries: reduce 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 Max Gain - Premium paid Max Loss - Unlimited

What is selling short against the box?

Selling short against the box is used when a client with a long position sells the same security but borrows the stock to effect delivery rather than delivering the long position.

What is the initial Reg T requirement?

Set by Federal Reserve, initial equity requirement is 50% in your cash account REG T = CASH ACCOUNT 5 days to pay = settlement + 2

Who sets the underwriting concession? What is the spread in a muni bond? What is a takedown?

Set by underwriting syndicate. The spread in a municipal bond underwriting is the gross profit earned by the syndicate. It is the difference between the amount the issuer receives for the bonds and the public offering price for the bonds. The takedown is the discount given to syndicate members by the manager of the syndicate on any bonds sold. The concession is a trade discount given to dealers who are not members of the syndicate. For example, a syndicate member may take down bonds at par minus 5/8 and sell them to the public at par, making a 5/8-point profit.

When is the settlement for foreign currency spot transactions?

Settlement for foreign currency spot transactions is usually two business days.

According to current regulations, if a client redeems his mutual fund shares, the fund company must send the payment within:

Seven days

What do shareholders have the right to do?

Shareholders have the right to vote for the board of directors, but not to appoint officers of the corporation.

WHat is a shelf offering?

Shelf registration or shelf offering or shelf prospectus is a type of public offering where certain issuers are allowed to offer and sell securities to the public without a separate prospectus for each act of offering. Instead, there is a single prospectus for multiple, undefined future offerings. The prospectus (often as part of a registration statement) may be used to offer securities for up to several years after its publication.

What is a banker's acceptance?

Short-term debt instrument issued by a firm that is guaranteed by a commercial bank. Banker's acceptances are issued by firms as part of a commercial transaction. These instruments are similar to T-Bills and are frequently used in money market funds. Banker's acceptances are traded at a discount from face value on the secondary market, which can be an advantage because the banker's acceptance does not need to be held until maturity. Banker's acceptances are regularly used financial instruments in international trade (help facilitate international trade). A BA (banker's acceptance) is used to facilitate foreign trade. It is a time draft that has been guaranteed (collateralized) by a bank.

Under the Know-Your-Customer Rule, when a registered representative opens a new account for a customer, the registered representative should determine all of the following information EXCEPT

Should know customers: Financial condition and needs Objectives Ability to assume risk BUT DO NOT NEED TO KNOW EDUCATION LEVEL

When a order has a priced specified, what kind of order is it? Does it have to be exercised at the limit price? Is it immediately exercised?

Since a price is specified, it is a limit order. A limit order may be executed at the limit price or better (lower for a buy order). It does not need to be executed at exactly the limit price. A designated market maker is permitted to hold a stop, limit, and stop-limit order. A portion of the order may be executed since the order was not marked AON (all or none). It does not need to be executed immediately since it was not marked IOC (immediate-or-cancel).

What is a primary / secondary distribution?

Since both the corporation and existing shareholders are selling stock, it is both a primary and secondary distribution. In a primary distribution, proceeds go to the corporation. In a secondary distribution, proceeds go to the selling shareholders.

An investment adviser opens an account for one of his clients. The registered representative opening the account would need?

Since the account is being opened for the investment adviser's client, the registered representative would require the client's name and Social Security number. Since a person other than the account holder (the adviser) will be entering orders, the registered representative would require written authorization from the client granting the adviser the right to enter orders.

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).

Discuss the hypothecation when you have 20k market value and 50% equity.

So you have CMV of 20k, debit 10k, equity 10k hypothecation - 20k for collateral; bank can rehpyotehcate 140% of debit balance - so 14k

What are soft dollars?

Soft dollars are products and services that an investment adviser receives from a broker-dealer in exchange for channeling some or all of their trades through a certain brokerage firm. KEY IS THAT THE SERVICES THE ADVISER RECEIVES MUST BENEFITS ITS CLIENTS

What are unit investment trusts?

Some unit investment trusts are funds that buy bonds for a portfolio and usually hold the bonds until maturity. The life of these funds is usually limited to the life of the bonds in the portfolio. Units can be bought in multiples of $1,000. The units can be redeemed at any time. If the general level of interest rates change, so will the price of the units. The funds are issued in book-entry form and registered form.

Why do companies do spinoffs?

Spinoff transactions occur when a company is seeking to divest a division. In a spinoff, each shareholder of the parent retains her original shares, but is also given shares in the newly created entity. There are no immediate tax consequences to the recipient of the new shares. Spinoffs are used by sellers in the hopes that the combined valuation assigned by the market to the two (now) separate companies will be greater than that of the single combined entity.

What is the spread of an option equal to?

Spread = max gain + max loss

What is stagflation?

Stagflation is defined as a prolonged period of a high rate of inflation together with a high rate of unemployment. This does not happen too often since high unemployment usually leads to a period of low inflation or even deflation (falling prices) and the possibility of a recession. A period of low unemployment usually leads to rising prices and increased inflation.

What is S&P's Depositary Receipt (SPDR)?

Standard & Poor's Depositary Receipt (SPDR) is a type of exchange-traded fund (ETF). It can be used to refer to a specific exchange-traded fund that tracks the S&P 500 or a group of ETFs.

What is a 529 plan? What is contribution amount?

State-sponsored, higher education savings plans that may be opened by an investor are referred to as Section 529 plans. 140000 CONTRIBUTION AMOUNT, also potential gift a lump sum of up to 70k (140 for joint) to avoid gift tax Federally tax free cause it's a state-sponsored program for use for higher education

So if you short 1000 shares at 40 dollars, what happens to your margin account when stock goes to 32? when stock goes to 48?

Stock goes to 32 = (40k + 20k) - 32k = 28k SMA = 28k - 50% * 32k = 12 k Stock goes to 48 = (40k + 20k) - 48k = 12k SMA = 0 (not affected by upward movement in market value of ABC stock) Min equity = 48k*30% = 14.4k CREDIT doesn't change with stock price movement (Credit is what you own... so its the initial proceeds and the margin deposit)

What happens when a stop order is activated?

Stop orders become market orders once they are activated. After the order is activated at or below 35, the next trade will be the execution price.

What are support and resistance levels?

Support is the bottom (not letting prices fall below); Resistance is the top (not letting prices go above Go below support = bearish Go above resistance = bullish

What is a T-bill?

T-Bill: short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months (13 weeks) or six months (26 weeks) T-bills are issued through a competitive bidding process at a discount from par, which means that rather than paying fixed interest payments like conventional bonds, the appreciation of the bond provides the return to the holder. Three- and six-month T-bills are auctioned weekly (longest maturity is six months). All T-bills are auctioned on a discount-yield basis with noncompetitive tenders awarded first and receiving the highest yield (lowest price) of the accepted competitive tenders. These securities are highly liquid and may be sold by a purchaser anytime prior to maturity. • The auction for 13- and 26-week T-bills is held each Monday. Settlement is on Thursday of the same week.

How are T-bills and corporate bonds quoted?

T-bills quoted on a discount yield basis (YTM will be greater since at discount) Corporate bonds quoted on a YTM basis

How long must retail communications be maintained on file for?

THREE YEARS

What is TIPS?

TIPS - treasury inflation protected securities The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater. TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.

What is TRACE and what kind of bonds does it serve and what kind of bonds does it not serve? What is RTRS?

TRACE - CORPORATE BOND MARKET + government-sponsored enterpise (trade reporting and compliance engine) was created to provide greater transparency in the corporate bond market. TRACE DOES NOT SERVE 144A SECURITIES NOR DOES IT SERVE MUNI SECURITIES Transactions in municipal securities must be reported to the Real-Time Transaction Reporting System (RTRS), which is operated by the MSRB.

What is the TRF? Are there reporting systems for the US government bond market? What is TRACE / RTRS?

TRACE is a reporting system that was created to provide greater transparency in the corporate bond market RTRS is the reporting system for municipal bonds and the TRF is the reporting system for stocks listed on Nasdaq. FThere is no reporting system for U.S. government bonds.

What should you think about when-issued?

TRANSACTION HASNT HAPPENED YET!!!

What happens to options when there is a reverse stock split?

TUV Corporation has executed a reverse stock split. When a corporation's stock has a reverse or forward stock split, all associated options contracts are adjusted. When a reverse stock split occurs, the number of shares underlying each option will be reduced and the strike price will increase. In the case of a 1-for-20 reverse split, the number of shares underlying the contracts will be reduced to 5 (100 / 20), and the strike price will be increased by the inverse of the split ($5 x 20 = $100). The contract's aggregate exercise price will remain the same after the adjustment. The number of contracts does not change with a reverse split.

What is a IRA rollover?

Take physical posession of money and then move to different IRA by the 60th day (no tax), can do once every 12 months (may have withholding tax if too long)

When selling your house, what are you taxed at?

Tax on home is on assessed value, not resale value

What does tax-qualified mean? What is a tax-qualified annuity?

Tax qualified means Typically grow tax-deferred, deductible for income Tax-qualified annuities are employer-sponsored plans that are available to certain nonprofit organizations, public school, and/or state/city university/college employees. These annuities, sometimes referred to as TSAs may be placed into a 403(b) or a 501(c)(3) plan. Since these plans are funded on a pretax basis, contributions are deducted from an individual's taxable income. An investor's cost basis is considered to be zero since none of the contributions have been recognized for tax purposes. Income grows tax-deferred not tax-free. Upon distribution, every dollar is taxable as unearned ordinary income. Tax-free growth means that none of the distributions will be subject to taxation. This is not the case with these types of plans.

How are variable annuity's taxed?

Taxed on gain portion at ordinary The recipient of a death benefit from a variable annuity may need to pay taxes on any amount above the contract's cost basis. For example, if a client invested $100,000 and died when the contract was worth $150,000, a nonspouse beneficiary may be required to pay taxes on the $50,000 above the decedent's contributions.

What is the CQS?

The Consolidated Quotation System (CQS) provides subscribers with bid/asked quotations for securities listed on national exchanges, including quotes from OTC market makers in those securities (the third market).

What are term bonds? Serial bonds?

Term bond: Bonds that mature or come due in a specific year. Term bonds are normally quoted using the dollar pricing (percentage of par) method and are sometimes referred to as dollar bonds Serial bonds: also known as installment bonds describes a bond issue that matures in portions over several different dates. Instead of facing a large lump-sum principal re-payment at maturity, an issuer can opt to spread the principal repayment over several periods (so principal outstanding is decreasing as are interest paymetns). Normally, traders quote municipal bonds issued in a serial maturity on a yield basis, where the yield quoted is the lower of yield to call or yield to maturity For example, a trader may quote a serial bond at a basis price of 5.35, which means a yield to maturity of 5.35%. A term bond would be quoted at a price of 98, which means that the bond is quoted at 98% of par value, or $980 ($1,000 par x 98%). Quotes for serial municipal bonds are usually per $1,000 and on a yield-to-maturity basis. The less 3/4 represents the concession or discount offered to another dealer. 3/4 point (.75%) = $7.50.

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 the 5% mark-up policy?

The 5% Markup Policy does not apply when a security is being issued with a prospectus (NEW ISSUES, mutual funds, registered secondaries), mutual funds, or for municipal securities. Securities quoted on Nasdaq would be the only choice given for which the 5% guideline would apply. FINRA has set a guideline to ensure that the prices investors pay and receive for securities are reasonably related to the market for the securities. As a general rule, FINRA considers a charge of 5% to be reasonable. The 5% policy is a guideline, not a rule. A broker is an agent who acts for someone else and receives a commission when a trade is executed. A dealer is a principal who acts for his own account and adds a markup on a purchase. In both cases, they must conform to the 5% Markup Policy, which is a guide broker-dealers must follow. The 5% Markup Policy covers all transactions except municipal bonds and those requiring a prospectus (i.e., the sale of a new issue, mutual fund, and registered secondary).

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). Bond Buyer is a publication

What is CQS?

The Consolidated Quotation System (CQS) is the electronic service that provides quotation information for stock traded on the American Stock Exchange, New York Stock Exchange (stock, warrant, or bond), and other regional stock exchanges in the United States and also includes issues traded by FINRA member firms in the third market. NASDAQ processes this data and provides it to its subscribers as the Composite Quotation Service. The initials CQS may be used either for the exchange system or the NASDAQ service.

What is the Dow theory?

The Dow Theory, which is followed by some technical analysts, states that a major reversal in the market has occurred when both the Dow Jones INDUSTRIAL Average (DJIA) and the Dow Jones TRANSPORTATION nAverage (DJTA) break their trends.

What is ERISA?

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans. If plan is qualified, employee and employer contributions are deductible

What does the Federal Farm Credit bank do?

The Federal Farm Credit Banks issue consolidated systemwide notes that are issued at a discount (as with T-bills) and are non-interest-bearing. Bonds are also issued that are interest bearing (have a stated interest rate). Interest is subject to federal taxation but is exempt from state and local taxation.

What is the Federal Farm Credit System composed of?

The Federal Farm Credit System is composed of the Banks for COOPERATIVES Federal INTERMEDIATE CREDIT Banks Federal LAND banks Provide agricultural financing

Out of Federal Home Loan, Federal Farm Credit Bank, Federal National Mortage Association, and FRB - who doesn't issue security and what securities are issued?

The Federal Home Loan Bank issues securities and uses the funds to provide liquidity to savings and loan institutions. The Federal Farm Credit Bank issues securities and uses the funds to make loans to agricultural borrowers. The Federal National Mortgage Association issues securities to purchase mortgages from financial institutions. The Federal Reserve Board does not issue securities, but will purchase and sell securities to influence U.S. monetary policy. U.S. Treasury securities are issued by the Department of the Treasury, although the auction is conducted through the Federal Reserve Board.

How do you tax short sale gains or loss?

The IRS does not recognize a holding period on a short sale of a stock or an opening sale (writing) an option

What is the Interbank?

The Interbank market is an unregulated over-the-counter market in which currencies of different countries are bought and sold. Foreign currency transactions may settle on a spot or forward basis. Spot transactions settle in two business days from the trade date. In a forward transaction, the exchange rate is established on the trade date but settlement occurs in more than two business days. While foreign currency transactions are not reported on Nasdaq, spot quotes are available from information vendors such as Knight-Ridder Financial Information Systems, Reuters, and Telerate.

What is the MSCI EAFE (Morgan Stanley Capital International Europe, Australasia, and Far East)?

The MSCI EAFE (Morgan Stanley Capital International Europe, Australasia, and Far East) Index follows the equity performance of the developed markets but excludes the U.S. and Canada. The FTSE Index mostly follows the stocks of companies trading on the London Stock Exchange.

What kind of information does MSRB regulate?

The MSRB regulates the yield that must be disclosed on a client's confirmation. The yield disclosed is the lower of the yield to maturity or yield to call. In other words, the yield to worst. If a bond is callable and trading at a discount, the lower of the two would be the yield to maturity.

What is the OCC risk disclosure?

The OCC risk disclosure document discusses the rules and regulations of options trading, as well as the risks involved in options trading.

What are the SEC Order Handling rules?

The SEC Order Handling Rules require that a customer's limit order be displayed in a market maker's quote if it improves that quote. This is true even if the customer's order does not improve the inside market.

In a Rule 144A transaction, which of the following statements is NOT TRUE? The seller, or any person acting on its behalf, such as a broker-dealer, must reasonably believe that the purchaser is a qualified institutional buyer (QIB) The buyer must be able to establish its credentials as a QIB, through relevant documentation The only documentation acceptable for establishing that the purchaser is a QIB is audited financial statements (or their equivalent, for foreign issuers) If the seller has no reason to question the accuracy of documentation provided by the purchaser, it has no duty to inquire further about the purchaser's status as a QIB

The SEC has provided several examples of documents that can be relied on by the seller when establishing its belief that a purchaser is a qualified institutional buyer. Audited financial statements and a certification from the issuer are common methods of demonstrating that the purchaser is a QIB.

What securities does the Securities Act of 1933 exempt?

The Securities Act of 1933 exempts government securities (both direct and agency), municipal securities (e.g., a G.O. bond), and corporate debt with a maturity of 270 days or less. NOT SECURITIES ISSUED BY AN INVESTMENT COMPANY (mutual fund - requires prospectus)

What is the Trust Indenture Act of 1939? What kind of bond (corporate, muni, federal) is it geared towards?

The Trust Indenture Act of 1939 exclusively regulates CORPORATE DEBT securities. It does NOT cover exempt securities such as U.S. government securities, municipal securities, or private placements. requires that a trust indenture be established between the issuer and the trustee on behalf of the bondholders to protect the bondholders' rights. A law passed in 1939 that prohibits bond issues valued at over $5 million from being offered for sale without a formal written agreement (an indenture), signed by both the bond issuer and the bondholder, that fully discloses the particulars of the bond issue. The act also requires that a trustee be appointed for all bond issues, so that the rights of bondholders are not compromised. In the event that a bond issuer becomes insolvent, the appointed trustee may be given the right to seize the bond issuer's assets and sell them in order to recoup the bondholders' investments. (most important for corporations, not muni / local bonds)

What is the Wilshire Associates Equity Index?

The Wilshire Associates Equity Index shows the market value in dollars of roughly 7,000 NYSE, NYSE MKT (formerly NYSE Amex), and Nasdaq stocks. It contains the most stocks of the choices listed.

What is the additional bonds test?

The additional bonds test sets a minimum level of coverage of debt service for interest and principal for all outstanding bonds and for future debt. Debt Service = INTEREST + PRINCIPAL The additional bonds test protects original bondholders against the dilution of the debt service coverage Coverage (Rev - Opex = Net Revenue) / debt Service

What is the advance-decline index?

The advance-decline index is a measurement of advancing stocks versus declining stocks over a specified period. It is a good indicator of the strength of a bull or bear market. A/D Line = (# of Advancing Stocks - # of Declining Stocks) + Previous Period's A/D Line Value

What is laddering a portfolio?

The approach is referred to as the laddering of a portfolio. When the earliest bonds mature, the proceeds are then reinvested at the long side (i.e., longest maturity) of the ladder. This investor reinvests the proceeds of the bonds that mature in year one into bonds that mature in 10 years. The purpose of this strategy is to reduce the impact that changes in interest rates will have on the portfolio. Investors that utilize a barbell strategy will buy bonds at the two ends (long and short maturities) of the yield curve. This strategy seeks to capture the high-coupon interest from the long-term bonds while also retaining the ability to reinvest quickly when the short-term bonds mature. Therefore, if the investor anticipates that there will be a shift in interest rates, only a portion of the portfolio will need to be adjusted

What is in the basic customer margin agreement?

The basic customer margin agreement includes the hypothecation, loan consent, and credit agreements

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.

Which bond has the most interest-rate risk?

The bond with the most interest-rate risk or price volatility is the one with the longest maturity and lowest coupon.

What does the bondholder receive when the bond is called?

The bondholder receives the call price (either at par or at a premium) AND accrued interest earned up to the call date.

What must a broker-dealer receive before it marks an account deceased or change the account title in a joint account?

The broker-dealer must receive a death certificate as proof of death before it may mark an account deceased, or change the account title in a joint account.

What is the PSA model?

The cash flows, future payments that a bondholder will receive, determine the market price of the bond. Collateralized mortgage obligations (CMOs) have uncertain cash flows due to the prepayments (early retirement) of mortgages. Prepayment risk is the risk that homeowners will pay off their mortgages early and the clients who invested in the securities backed by the mortgage will receive their principal prior to maturity. The Public Securities Association (now SIFMA), an association of financial services firms, created a standard model for estimating the prepayment rate for mortgage-backed securities including CMOs. This is called the PSA Mode

To be considered good delivery for a sale of a 600 of shares, what must the count look like?

The certificates must be divisible into round lots of 100 shares and must total the traded shares. 6 certificates for 75 shares each and 6 certificates for 25 shares each because you can make round lots of 100 shares using 1 75 share certificate and 1 25 share certificate. Cannot do 8 certificates of 75 shares (does not equal round lot of 100 shares) each or 5 100 shares (not enough shares)

A charity has received restricted stock from the director of a corporation. The director owned the stock for two years before giving it to the charity. According to SEC Rule 144, the charity may sell the stock:

The charity may sell the stock freely (immediately) since the required holding period for restricted stock has already been met by the director. Since the charity is a not affiliated with the issuer (a nonaffiliated person), it is not subject to the volume restrictions. However, the stock is still restricted (unregistered) and must be sold under Rule 144. Rule 144A, not Rule 144, requires the purchaser to be a qualified institutional buyer.

What is the crossover point in a DPP?

The crossover point is reached when the project's revenues exceed expenses and net income is produced.

How do you calculate the current yield?

The current yield is found by dividing the yearly interest payment of $45 by the market price of $1, 055. This equals 4.26%. The fact that the bond was purchased at par is not relevant.

What is a custodian bank?

The custodian bank is responsible for the safekeeping of the securities owned by a MUTUAL FUND. The custodian bank has no responsibility relating to the management of the fund's portfolio. A custodian bank, or simply custodian, is a specialized financial institution responsible for safeguarding a firm's or individual's financial assets and is not engaged in "traditional" banking

If customer places order for 1,000 shares nut rr makes error, what happens?

The customer is not required to accept more than the original order for 1,000 shares. However, the order should not be cancelled. Since an error was made, the registered representative should speak with his supervisor to determine how to handle the situation. Entering a new order to buy 1,000 shares does not solve the problem because, if it is executed, the firm will then be long 2,200 shares of stock.

What is the effective date?

The date, declared by the Securities & Exchange Commission (SEC), on which shares can start trading. This usually refers to the date when shares become available for sale in an initial public offering. The effective date occurs approximately 20 days after the security is registered with the SEC, giving time for the SEC to review the registration.

A municipal dealer purchased $100,000 face value of 6.00% bonds at a 6.00 basis. If the dealer reoffered the bonds, which TWO of the following choices will be considered reasonable? 101 108 5.80 basis 4.00 basis

The dealer purchased the bonds at par (6% coupon at a 6.00 basis). When reoffering the bonds, the dealer's markup should be reasonable. A one-point markup (101) is considered reasonable, whereas an eight-point markup (108) is not. An offering of 5.80 represents a reduction in yield of 20 basis points and is considered reasonable. A reduction in yield of 200 basis points (6.00 basis minus 4.00 basis reoffering) is excessive.

What is the probate process?

The death benefit on a variable annuity skips the probate process. Probate is the court-supervised process of gathering a deceased person's assets and distributing them to creditors and inheritors.

Discuss the tax implications of taxes on IRA.

The earnings on an IRA account grow tax-deferred. If an investor maintains an IRA account that has pretax and after-tax contributions and makes withdrawals, the IRS considers withdrawals to come from both sources. Therefore, a portion of the withdrawal is taxable and the other portion is tax-free. If only pretax contributions are made, the entire withdrawal will be taxable as ordinary income. Withdrawals from a tax-deferred account are never taxable as a capital gain (you gotta give up something for tax deferred). Taxed at ordinary income.

What is the federal funds rate?

The effective federal funds rate is the daily average rate that commercial banks (FEDERAL RESERVE MEMBER BANKS) charge another bank throughout the country for overnight loans held at the Fed. It is influenced, but not set by, the Federal Reserve Board. An increase in the federal funds rate normally signifies that the Fed has taken money out of the banking system.

How do stock index options settle and in what form of currency and when do they expire and what style are they? How about equity options?

The exercise of stock index option settles in cash on the next business day instead of the delivery of securities (options in general are settled the next business day). Writer is obligated to deliver the CASH DIFFERENCE between the exercise price and the market price. They have a monthly expiration cycle Equity options, if exercised, would settle in three business days

What is the feasibility study?

The feasibility study should, among other things, outline sources of revenue: user charges or tolls, concessions and fees, special taxes, and rental or lease payments. Another potential source of revenue is legislative appropriation, or tax dollars granted by the residents' elected representatives.

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. CALCULATED ON A DAILY BASIS Although it is greatly influenced by the Fed, it is the only choice not under the Fed's direct control.

What are some disclosures in a research report?

The firm was the managing underwriter in a recent public offering of the stock The firm needs to disclose IT OWNS THE STOCK (BUT NOT THE ACTUAL NUMBER) The partners of the firm who hold OPTIONS to purchase the stock The firm makes a market trading in the stock

A customer enters a sell stop-limit order for 100 XYZ at 25.50. XYZ trades occur as follows: 25.50, 25.25, 25.13, SLD 25.50. The customer's order was: Executed at the market price after the order was entered Executed at 25.25 Executed at 25.50 Not executed

The first trade at 25.50 touched the stop price of 25.50 and the order became an active or live order to sell 100 shares of XYZ at a limit price of 25.50 or better. Thus, the stock must increase to at least 25.50 for an execution. The only other trade at 25.50 has the symbol SLD next to it, indicating that a trade occurred previously (assume prior to the other trades shown), was reported out of sequence, and is now being shown to indicate that fact. There is no trade at the customer's limit price of 25.50 after the customer's order became a live order. Therefore, the customer's order was not executed.

How much equity is in a cash account with securities + cash?

The full cash + securities amount (total value of cash account)

What is tax treatment on short sale?

The gain or loss on a short sale is typically treated as a short-term capital gain or loss, since a holding period for the security is not established. The customer closed out the short position the same day, so the holding period was less than one day. In this example, the client has a short-term capital gain taxable in the year the short sale was covered and the stock was delivered.

Who assumes the liability of the limited partnership?

The general partner is the member of the limited partnership who assumes liability for the debts of the entity and is usually concerned with its overall management (has to contribute 1% of the capaital) The general partner has the most risk in a limited partnership. The general partner directs all management affairs of the partnership. The limited partner has no management capacity in the partnership. The limited partner's risk is his investment. Most direct participation programs are set up as limited partnerships, which provide for the flow-through of tax consequences and benefits to their investors (limited partners).

What is a good faith check / deposit?

The good faith deposit, which specifies the amount of a check (which will be credited toward the purchase of bonds) for the winning bidder. These checks are returned to unsuccessful bidders after the bid is awarded. The good faith check is used merely to ensure that only serious bidders vie to underwrite a deal for a municipality.

What is the penalty for withdrawing from your IRA if you are over 70.5?

The individual will be subject to a penalty of 50% of the actuarial amount (the amount specified by the IRS that should have been withdrawn). This is the penalty for not making withdrawals from the plan. Distributions must start after the planholder reaches age 70 1/2.

How are revenue bonds taxed?

The interest on a revenue bond is usually paid from the earnings of the facility for which the bonds were issued. The interest is exempt from federal income tax and revenue bonds are considered riskier than general obligation bonds, taxed on local / state level

What is the biggest tax issue with private activity bonds?

The interest on municipal private activity bonds is subject to federal income tax if the investor is subject to the alternative minimum tax (AMT).

What does an investment bank do? S&T? Purchase and sales department?

The investment banking department assists issuers who need to sell new securities to the public. The sales and trading department is involved in the secondary market trading of securities. The purchase and sales department and the reorganization department are both part of a firm's operations area involved in processing the trades and maintaining the books and records pertaining to customer accounts

The 8 1/2% bonds are being offered at a discount at 99 1/2% of their $1,000 par value. An investor who purchased the bonds at the offering (at $995) and held the bonds to maturity will receive the par value of $1,000. What is investor's YTM?

The investor will, therefore, have a yield to maturity that is greater than the coupon rate (nominal yield) of 8 1/2% b/c bought bond at discount.

What does the issuer's bond counsel do?

The issuer's bond counsel writes the legal opinion (makes debt legal). It states that the interest is exempt from federal taxation and that the issue is valid and legal

Which of the following annuity settlement options would provide the longest stream of income over the lives of two individuals? Life annuity with a 20-year period certain Joint and last survivor annuity Unit refund life annuity Straight-life annuity

The joint and last survivor settlement option would provide the longest stream of income as it guarantees payments until the last annuitant dies. (SO IF YOU DO IT WITH YOUR SON... IT WILL KEEP PAYING TIL HE DIES) The life annuity with 20-year certain would result in payments ending after 20 years even if the survivor was still alive. The unit refund life annuity will only refund the balance (to beneficiaries) of what is left over after the annuitant dies. An investor who wants to insure that the total value of their account will be paid out to their beneficiaries in the event of their death would select a unit refund option Straight-life annuity: RECEIVE THE GREATEST AMOUNT OF CASH FLOW, but payments cease after the annuitant dies in a straight-life annuity (no beneficiary allowed)

What is the "seasoning" of an investment?

The length of time a debt security has been publicly traded. Seasoning determines if a premium should be made for the security in the secondary market. The debt security can be "unseasoned" if has been traded for less than a year, or "seasoned" if it has been traded for over a year with a good payment track record. Seasoning is another way of characterizing investments that have a reputation, with that reputation being built on an investment's history. Investors are typically more skeptical of new investors without a proven record, and are more likely to pay a premium for securities that are safer. In the case of a seasoned note, the quality of having more than 12 months of payments indicates that the likelihood of the note being paid back in full are high

When Company buys stock on margin, what must the customer do to get the loan?

The loan is the "debit"... Company pledges securities as collateral for the loan (hypothecation agreement)

What is the mark-up / mark-down?

The markup or markdown is the difference between the prices the customer paid or received compared to the best bid or offer price of all Nasdaq market makers (the inside market). For example, if the inside market is $25.50 - $25.70 and the customer paid $25.90 to purchase the stock, the markup is $.20

What is most important in selecting a DPP?

The most important factor for any DPP is whether it is a good investment. The tax-related aspects are only of benefit if the program is economically sound.

What is the multiplier effect?

The multiplier effect, created by the reserve requirements placed on members of the Federal Reserve System, refers to the fact that small changes in bank deposits result in large changes in the money supply.

What does this firm quote mean? 15 - 15.50, 5 x 8

The number of shares that are firm is based on round lots of 100 shares, first the number for the bid and then the number for the offer. The market maker is obligated to buy 500 shares at $15.00 and obligated to sell 800 shares at $15.50.

Whose authorized signature is necessary for a custodial account?

The only authorized signature for a custodial account is that of the custodian. There is no further documentation required.

What are violations of the Secuirites Act of 1933?

The other actions listed are in violation of the Securities Act of 1933: if a registration statement has not been filed with the SEC. A registered representative may not inform a customer that the customer may receive as many shares as desired. Nor may the registered representative solicit buy orders or solicit indications of interest from the customer. A registration statement needs to be filed before indications of interest may be accepted, and only indications of interest will be acceptable at this time, not orders. There is no prohibition restricting an RR to contact an investment banker at the firm

What is the maximum allowable percentage that may be sold above the original size of the offering through a Green Shoe option?

The overallotment provision of an underwriting agreement may contain a Green Shoe clause that allows the syndicate to increase the number of shares sold by 15% over the original number of shares in the offering.

What is the passbook savings rate? Out of discount rate, fed funds rate, and prime rate, and passbook, which one is most volatile?

The passbook savings rate is the interest rate an individual receives on a basic savings account with a commercial bank and is the least volatile rate. The Fed funds rate is the most volatile rate b/c it calculated on a DAILY BASIS.

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.

What is the PAC tranche?

The planned amortization class (PAC) is a type of CMO that is designed for more risk-averse investors and provides a predetermined schedule of principal repayment, as long as mortgage prepayment speeds are within a certain range. This greater predictability of maturity is accomplished by establishing a sinking-fund type of schedule. The PAC tranche has top priority and receives principal payments up to a specified amount. Any excess principal goes to a companion or support tranche that has lower priority. Holders of the companion tranche are generally compensated for this risk with higher yields.

What is considers advertisement for munis?

The preliminary and final official statements are not considered advertising since they are prepared by or for the issuer However, a summary of an official statement is considered advertising since it is prepared by the municipal representative and, therefore, must be approved by a municipal principal.

How do the price of preferred stock move?

The prices of preferred stocks are inversely related to the movement of interest rates, as are bonds. Therefore, if the investor is concerned that rising interest rates will erode the value of the preferred stock portfolio (need to hedge portfolio), the purchase of an option that does well when interest rates rise will provide an effective hedge (yield-based calls)?

What is a 1035 exchange?

The primary benefit of a 1035 exchange is that it is not taxable. However, the new annuity may come with new restrictions making it unsuitable for the investor. A Section 1035 Exchange refers to the replacement of an annuity or life insurance policy for a new one without incurring any tax consequence for the exchange. The IRS allows holders of these types of contracts to do this in order to replace outdated contracts with new contracts with improved benefits, lower fees and different investment options. RR needs to ask if done more than one time in 36 months. Principal must sign off and will ask if it is in client's best interest (RR gets paid with switch) - has 7 days to sign, and if doesn't sign will reject Can move annuity to annuity, life insurance to annuity but not annuity to life

A municipal syndicate account letter includes:

The principal syndicate account letter, which is the agreement between the syndicate members, includes duration of the account, participation of each member, and the designation of the manager as the agent for the new issue underwriting. Does not include the final re-offering scale because the syndicate has not yet won the deal.

What is found in a munis official statement?

The project feasibility and financial statements are found in a municipality's official statement. Reoffering yield is in the official statement. But not a 100% necessary. DOES NOT NEED TO BE APPROVED BY PRINCIPAL

What is the put/call ratio?

The put/call ratio is a technical market indicator and is found by dividing the volume of all put transactions by the volume of all call transactions on a daily basis. Technical analysts view the put/call ratio as a contrarian indicator. The higher the ratio, the more oversold the market, and the higher the probability that the market will reverse course and turn bullish. The opposite is true for a low put/call ratio, which is viewed as a bearish indicator.

What is the relation between ex-dividend and record date?

The record date is important because of its relation to another key date, the ex-dividend date. On and after the ex-dividend date, a buyer of the stock will not receive the dividend as the seller is entitled to it. The ex-dividend date is set exactly two business days before the dividend record date.

What does the registered options principal do?

The registered options principal (ROP) is specifically responsible for the firm's compliance program with respect to its options activities. (Establishing option training programs for registered representatives and ROPs) The ROP performs an audit function to determine that these activities are conducted in compliance with current applicable regulations and rules Some of the ROP's principal duties include establishing guidelines for options retail communication, and reviewing all such material before it is used. The ROP also reviews the method of allocation of exercise notices. Review selected customer accounts Review option seminar transcripts

Who is the registrar?

The registrar makes sure that outstanding shares do not exceed authorized shares

What do the registration provisions of the 1933 act apply to?

The registration provisions of the 1933 Act apply if securities sold are listed on the NYSE or Nasdaq. In addition ADRs and REITs both issue shares of common stock and if sold to public in the US, require SEC registration(basically any security sold to the public in the US requires SEC registration) DO NOT apply to securities issued by a municipality or security sold only to qualified institutional buyers (QIB) The antifraud provisions of the Securities Act of 1933 apply to all securities, even those exempt from registration

How long does SEC have to accept or reject a registration?

The registration will be either accepted or rejected by the twentieth day or earlier. Amendments can be made to the registration if the SEC deems that changes are necessary. If the items in question are not modified, the registration process is not completed.

What is a renewal and replacement fund?

The renewal and replacement fund holds monies put aside for the improvement of the facility, typically for munis

What is a biggest risk of CMOs?

The risk that an investor will receive her principal earlier than projected (prepayment risk) is the most important risk concerning mortgage-backed securities such as CMOs. Although all fixed-income securities will have interest-rate risk, prepayment risk is unique to CMOs. Most CMOs are highly rated due to the underlying mortgages backing these securities. Prepayment risk is ASSOCIATED WITH A FALLING INTEREST-RATE environment in which mortgage holders refinance or repay their mortgages at a faster rate.

How do you sale a limited partnership agreement?

The sale of a limited partnership interest is executed by means of a subscription agreement (TELLS WHO IS REQUIRED TO SIGN THE DOCUMENT). It is signed by the limited partner, but is not final until the general partner signs the agreement which signifies the acceptance of the limited partner.

A NYSE-listed stock closed at $72. The next day the stock is ex-dividend 60 cents. To determine if the stock increased or decreased from the close of trading, the price is based on:

The stock will be reduced by 60 cents. The stock must be reduced in price to entirely cover the dividend. Therefore, the stock will open at 71.40 (72 - .60 = 71.40).

What are different tranches of CMOs?

The separate classes of a CMO are known as tranches. The longest maturity is frequently called the Z-tranche or the accrual bond, and does not receive interest or principal payments until the shorter maturing tranches have been retire PAC tranche: A class of tranche in a planned amortization class (PAC) bond that receives a primary payment schedule. As long as the actual prepayment rate is between a designated range of prepayment speeds, the life of the PAC tranche will remain relatively stable. This tranche of the PAC bond receives some measure of protection against prepayment risk. Support / companion tranche: A class of tranche found in planned amortization class (PAC) and targeted amortization class (TAC) collateralized mortgage obligations (CMOs) that absorbs variable prepayment rates. The companion trache is so named because it is designed to provide support to the main PAC tranche, which has priority in receiving principal and interest payments so as to give its investors steadier and more predictable cash flows. If the actual rate of prepayments differs from the assumptions made at the time the CMO was issued, the difference is absorbed by the companion tranche.

What does Reg T require for payment?

The settlement date on a transaction is three business days following the trade date. Regulation T requires payment by customers for purchases in two business days following the settlement date, while the rules of the SRO require settlement between the buying and selling brokers in three business days from the trade date.

A registered representative enters an order for a client. In error, the RR purchases shares of the wrong security. What happens?

The shares are placed in a broker-dealer account. All broker-dealers are required to maintain an error account. It is used by a broker-dealer if the firm or an RR executes a trade in error (e.g., the wrong security or the wrong side of the market). RRs do not have an error account. It is maintained by the firm. The firm should execute the original transaction immediately and maintain a record of the error. The firm is not required to notify the market where the order entered in error was executed.

What is the specialist on an exchange called? And what are they not permitted to do?

The specialist on an exchange is also referred to as a designated market maker (DMM). A DMM is not permitted to compete with public orders when trading for its own account. The designated market maker must buy and sell for his own account (acting as a dealer) to make the market fair and orderly. He must be a buyer when there are no buyers and be a seller when there are no sellers. By so doing, he narrows the spread between sales. The DMM may BUY STOCK AT A HIGHER PRICE OR SELL STOCK AT A LOWER PRICE. In doing so, the DMM has narrowed the spread (the difference between the bid and ask). The DMM is permitted to buy stock at $34.71 since this price is higher than the price of the public order ($34.70).

What does the suitability agreement talk about for a limited partnership?

The subscription agreement will normally state the suitability standards for the program, specify who must sign the agreement, specify to whom the check must be made payable (INVESTOR WILL WRITE CHECK, BUT DEPENDS ON WHO TO SEND CHECK TO - WHATEVER IT SAYS IN SUBSCRIPTION), and make inquiries of the purchaser to make sure that he or she understands the ramifications of the investment and can meet the financial requirements of this investment. Priority provisions for liquidating a limited partnership, and the tax implications, would be found in the offering documents.

What is the subscription agreement of the DPP? How about the offering document?

The subscription agreement will normally state the suitability standards for the program, specify who must sign the agreement, specify to whom the check must be made payable, and make inquiries of the purchaser to make sure that he or she understands the ramifications of the investment and can meet the financial requirements of this investment. Priority provisions for liquidating (dissolving) a limited partnership, the tax implications, sharing arrangement between the limited and general partners, amount of money GP will contribute to program would be found in the offering documents.

What is a syndicate agreement?

The syndicate agreement is a contract among the underwriters that defines their working relationship and addresses such items as the priority of orders and sharing of the underwriting spread.

What is a fast market?

The term fast market is characterized by very heavy trading, fast moving prices, and high volatility. There also may be an imbalance in the number or shares clients are willing to buy or sell.

What is a fund family or fund complex for mutual funds?

The term fund family or fund complex is used to define a single investment company or mutual fund company with many different types of mutual funds that a customer may choose to purchase. The objective is to provide a large number of mutual funds providing a broad range of suitability for investors. A customer may be able to invest a large sum of money with one fund family, receive a sales breakpoint (reduced sales charge), diversify his assets, and have the ability to switch between mutual funds. The most important disclosure an RR should be made to the client is that there is no advantage to allocating his investment in four different fund families, thereby losing the possibility of receiving a reduced sales charge (sales breakpoints).

What is short interest?

The term short interest refers to the amount of a company's shares of common stock that have been sold short and have not yet been covered (closed out). An increase (not decrease) in short interest has historically been considered a bullish indicator by a technical analyst. Small short interest tends to make for a technically weak market. OPPOSITE IS OPEN INTEREST (call options contracts that have not been closed through a sale)

What does the term "when-issued" mean?

The term when-issued covers the period of a new issue of municipal securities from the original date of sale by the issuer to the delivery of securities to the underwriter. The purchase or sale of new issue securities PRIOR TO REGISTRATION may be a violation of the 1933 Act. When Issued transaction is a transaction that is made conditionally because a security has been authorized but not yet issued. The transaction is settled only after the security has been issued.

What is the difference between underwriting syndicate and selling group?

The underwriting syndicate makes a (financial) commitment to the issuer to purchase the entire offering. If the syndicate cannot resell the offering at the public offering price, it may suffer a loss. While the selling group also participates in the sale of the new issue, it does not run the risk of losses if the securities do not sell.

What happens if muni is selling at premium - what is the yield?

The yield for a municipal bond that is selling at a premium and is callable at par is calculated to the call date. The yield to call measures the yield that will be earned if the bonds are called at the call price and not held to the maturity date. MSRB rules require dealers to quote the lower of the yield to call or the yield to maturity. If the bond is selling at a discount, the bond is quoted on a yield to maturity basis. If the bond sells at a premium and is callable at a premium, the yield may be to the final maturity or the call date, whichever is lower.

What are the different types of orders that can be placed within a syndicate for a new issue?

There are four types of orders that can be placed with a syndicate. A presale order is any order placed before the syndicate that actually purchases the issue from the issuer A group order is a situation where all members of the syndicate share in the profit A designated order is usually placed by a large institution that designates two or more members to receive credit for the sale (FIRST ISSUANCE, not secondary market) A member order is an order placed by members for their customers

What are the three types of REITS?

There are three types of REITs: - mortgage REITs which provide funds to real estate owners in the form of lending them funds (i.e., a mortgage) - equity REITs which own and operate income producing real estate (for example, apartment buildings, commercial property, shopping malls and other types of retail property, and vacation resorts) - hybrid REITs, which invest in both of these ventures

What is difference between accredited investor and institutional investor?

There is a difference between an accredited investor (having at least $1,000,000 net worth or $200,000 of annual income), which is defined under REGULATION D, and an institutional investor (a financial institution or an account with at least $50,000,000 of invested assets), which is defined by FINRA (different than QIB - qualified instructional buyer).

Is there a secondary market for REITs? How are prices determined? What fund does a REIT trade similarly too?

There is a secondary market for REITs (real estate investment trusts). The vast majority of REITs trade on the NYSE with prices determined by supply and demand. Closed-end funds are funds that are often bought and sold on the NYSE that trade in a similar manner.

Do munis file with the SEC?

There is no offering document filed with the SEC (municipal securities are exempt) and a list of the syndicate members does not need to be sent.

What is there not a secondary market for?

There is no secondary market for federal funds (overnight borrowing between banks and other entities to maintain their bank reserves at the Federal reserve), repos (repurchase agreement), or U.S. savings bonds, mutual fund

Can there be more than one custodian in custodian account?

There may be only one custodian for a minor's account. Either the husband or the wife may be the custodian. However, they may not both be custodians for the minor's account.

What happens when somebody exercises an option in a margin account? A customer owns 20 ABC Corporation October 30 calls in a margin account. The customer exercises the calls and on the same day sells the stock at $32. The customer will need to deposit what amount in the account?

They are required to meet the Reg T deposit on the underlying shares. Exercises contract worth $60k in stock - need to deposit 30k

How are mutual funds and annuities similar and different?

They are tax deferred, buy in at NAV, but not as liquid - like a open-investment company (purchasing accumulation units)

What are private activity bonds?

They are typically REVENUE BONDS, not general obligation bonds. A private activity bond is a type of municipal bond in which the funds being raised will be used to benefit a non-public (private) company (e.g., an airport terminal for an airline). If the person receiving the bond's interest payment is subject to the alternative minimum tax (AMT), the interest is taxable at the federal level. For this reason, these bonds are the least suitable for a client who is subject to the AMT. Private activity bonds are issued to finance the construction of a facility that will be used by a private corporation. Interest earned on such bonds is often subject to the Alternative Minimum Tax (AMT). Only the interest received from certain municipal private activity bonds is taxable if an investor is subject to the alternative minimum tax. The AMT is a second method of calculating federal income tax liability. Taxpayers must pay the larger of the AMT or the result of the regular (Form 1040) income tax calculation.

What do muni securities principal need to approve?

They must approve municipal advertising and correspondence sent to customers Advertising must be approved prior to first use by a municipal securities principal. An official statement or preliminary official statement is not considered advertising. However, a dealer-prepared summary or abstract of the official statement is considered advertising. Research reports are also considered advertising. Form letter is advertising. A red herring (preliminary prospectus) relates to a requirement of the Securities Act of 1933 from which municipal issues are exempt. Munis are also exempt from registration.

What is a trust bond?

Trust bond: a bond that is secured by a financial asset - such as a stock or other bonds - that is deposited and held by a trustee for the holders of the bond

When is ex-rights date?

Two days before (prior) to record date

What is a difference between open-end and closed-end fund?

This differs from a closed-end fund which has a limited number of shares available. Open-end fund: Mutual Fund that will continuously issue new shares but only issues COMMON SHARES. Shares do not trade in the secondary market. Prospectus delivery required.Shares sold back to fund. Closed-end fund issues a fixed number of shares. Typically sells his/her shares on the open market to another investor instead of back to the fund company so shares traded on secondary market at par, discount, or premium to NAV (depending on supply / demand)/ Closed-end companies may issue common stock, preferred stock, or bonds.

A customer has a discretionary account at a broker-dealer. The customer has received a research report and has indicated that she may want to purchase a stock on the recommended list. Which of the following actions is MOST appropriate for the registered representative to take? Contact the customer and ask her to place an order to buy the security Purchase a small amount of the stock and contact the customer no later than the same business day Purchase a small amount of the stock and have the customer provide a written authorization form no later than the same business day Purchase the stock on behalf of the customer and have the order approved promptly by a principal

This is a discretionary account and, therefore, shares may be purchased without additional written customer consent. A principal or supervisor of the broker-dealer is required to approve promptly in writing each discretionary order.

What is a nondiscretionary account?

This is a nondiscretionary account and, therefore, no shares may be purchased unless the customer gives the broker-dealer an order to purchase the security In some cases, a registered representative may accept the customer's verbal authorization to make certain decisions without it being considered discretionary. If a customer (1) selects the specific security, (2) decides whether to buy or sell the security, and (3) specifies the number of shares, leaving discretion only as to time and/or price, it would not be considered a discretionary order and written authorization would not be required. This time and price discretion concerning the order is limited to the trading day on the day the order was placed, and must be noted on the order ticket. The client is permitted to give her RR written instructions for a longer period. There is no requirement to have the order preapproved by a principal.

What is a parity bond?

This is an example of a parity bond where two or more issues of revenue bonds have the same claim against revenue or are backed by the same pledged revenues.

What do you have to do, to be listed on the NYSE?

To be listed on the NYSE, a corporation must have a minimum number of round-lot shareholders, a minimum number of publicly held shares, a minimum aggregate market value of publicly held shares, a positive earnings history, national interest in the corporation, and agreement to solicit proxies.

An investor owns convertible preferred stock that was originally purchased at $106. The stock is convertible at $25, pays a 5% annual dividend, is callable at $110, and is trading at a current market price of $112. If the common stock is currently trading at $27.75 and the investor decides to convert the preferred stock into common stock, what would be the cost basis per share for the newly acquired common stock?

To determine the cost basis of the common stock, the first step is to calculate the conversion ratio (i.e., the number of common shares to be received if the preferred stock is converted). To calculate this, the par value of the preferred stock ($100) is divided by the conversion price ($25). As a result, four shares of common stock are received upon conversion. The cost basis of the newly acquired common shares is found by dividing the original purchase price of the preferred stock ($106) by the number of shares received (4). $106 ÷ 4 = $26.50. Any future gains or losses on the sale of the common stock are based on this price.

How do you determine the equity in a combined margin account?

To determine the equity in a combined margin account, take the long market value (LMV) plus the credit balance (CR), then subtract the debit balance (DR) and the short market value (SMV): LMV + CR - DR - SMV

Why is it illegal to induce an investor to buy mutual fund shares shortly before a dividend or capital gain distribution?

To induce an investor to buy mutual fund shares shortly before a dividend or capital gain distribution is to be paid is a violation of the Conduct Rules and is called selling dividends. There is no benefit to the customer because the value of the mutual fund will decline when the fund sells ex- (without the) dividend or when there is a capital gain distribution. The customer could just as well have waited and received the same value in shares. The broker-dealer used the imminent payment of the dividend or capital gain distribution as a sales tool to sell the customer, whereas the customer's needs and objectives should have been the salesman's major consideration.

What is a fixed share method?

To receive the same (fixed) dollar amount each month. Under the fixed-share method, a specified number of shares are redeemed each month. The amount received depends on the value of the shares at that time.

What is the customer's cost basis in a mutual fund?

Total amount invested / Total shares

What is total bonded debt?

Total bonded = Sum of both long-term and short-term debt (Direct debt) plus its share of overlapping debt

What is the Order Audit Trail System (OATS)?

Tracks the entire life of an order that is accepted by member firm for FINRA. The Order Audit Trail System (OATS) enables FINRA to effectively review market activity in regard to customer orders within a member firm, to conduct surveillance, and to enforce rules. OATS records the life of an order from receipt, to routing, to modification if applicable, and cancellation or execution.

What is the third market?

Trading by non exchange-member brokers/dealers and institutional investors of exchange-listed stocks. In other words, the third market involves exchange-listed securities that are being traded over-the-counter between brokers/dealers and large institutional investors

Who regulates option trading? Trading options on futures?

Trading in options on stocks is regulated by the SEC and FINRA, but trading on options on futures is regulated by the CFTC and the NFA.

How fast do transactions in Nasdaq need to be reported? And who reports?

Transactions in Nasdaq stocks must be reported to FINRA by the SELLER within 10 seconds of the trade

What are treasury notes?

Treasury Note: marketable U.S. government debt security with a fixed interest rate and a maturity between one and 10 years. Treasury notes can be bought either directly from the U.S. government or through a bank. There is a large secondary market that adds to their liquidity. Interest payments on the notes are made every six months until maturity. The income for interest payments is not taxable on a municipal or state level but is federally taxed.

What are direct obligations of the US government?

Treasury bills and Treasury notes are direct obligations of the U.S. government. GNMAs (Government National Mortgage Association) are guaranteed by the U.S. government as are Federal Home Loan Bank securities. FNMA (Federal national mortgage association) are not guaranteed by the U.S. government. The U.S. government guarantees the payment of interest and principal on all Treasury securities, savings bonds, and securities issued by the Government National Mortgage Association (GNMA or Ginnie Mae). Securities issued by the Federal Home Loan Mortgage Corporation (FHLMC [Freddie Mac]), a government-sponsored enterprise (GSE), are not guaranteed or backed by the U.S. government.

What are treasury bonds?

Treasury bonds are quoted in 32nds of a point, and are then calculated as a percentage of the par value ($1,000). The difference between 98.4 and 98.8 is 4/32. One point equals $10, so 4/32 or 1/8 of a point equals $1.25. Traded with accrued interest A market, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest payments semi-annually and the income that holders receive is only taxed at the federal level. There is a secondary market for t-bonds.

What securities are traded on a when-issued basis?

Treasury securities, stock splits, and new issues of stocks and bonds are all traded on a when-issued basis. Prior to a new issue's offering, underwriters solicit potential investors who may elect to book an order to purchase a portion of the new issue These orders are made conditionally - "when issued" - because they may not be completed (settled), particularly in the event the offering is canceled. Orders when issued are sometimes called orders "with ice" or orders "when distributed." The term is short for "when, as and if issued." When issued markets can provide an indication regarding the level of interest that a new issue will attract. When issued transactions are dependent upon the actual security being issued and the exchange or National Association of Securities Dealers ruling that the transactions will be settled.

What is a CMO?

Type of MBS. CMOs pay monthly income made up of interest, which is taxable, and principal, which is a tax-free return of capital Due to the structure of a CMO, a fluctuating amount of principal is returned monthly, not at maturity, which makes CMOs different from most other fixed-income securities (so get repaid back principal monthly... don't need entire principal returned at maturity.

What is a time draft?

Type of foreign check that is guaranteed by the issuing bank, but that is not payable in full until a specified amount of time after it is received and accepted. Time drafts are a type of short-term credit used for financing transactions of goods in international trade.

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. If the issuer's financial condition deteriorates, it can impact the value of the ETN negatively, regardless of how its underlying index performs, also ETNs may be sold at any time in the secondary markets or held until maturity. These securities are not like traditional fixed-income securities since they typically do not make interest payments to investors. This type of debt security differs from other types of bonds and notes since ETN returns are linked to the performance of a commodity, currency, or index minus applicable fees. Similar to ETFs, ETNs are traded on an exchange, such as the NYSE, and may be purchased on margin or sold short. Investors may also choose to hold the debt security until maturity Most ETNs are traded on a national exchange (e.g., NYSE) which has the feature of liquidity. Therefore, an investor seeking capital appreciation has the ability to sell when advantageous.

What is the settlement and delivery date on US government notes you purchased on July 3rd?

U.S. government notes have a next-business-day settlement and delivery date.

WHat must a RR do when disclosing certain information and promoting 529 plans? What could happen in her home state?

Under MSRB rules, an RR is required to disclose certain information when promoting 529 plans. The RR must discuss the risks and costs involved with the different types of plans, must provide a disclaimer stating that, prior to investing in a plan, the customer should read the official statement, and must provide a disclaimer that the client should check with her home state to learn if it offers tax benefits to those who invest in its plan

How can you get around Rule 144A restrictions on volume and holding-period? What is a qualified institutional buyer?

Under Rule 144A of the Securities Act of 1933, the owner of securities obtained through a private placement may resell those securities to a qualified institutional buyer (QIB) without the volume and holding-period restrictions of Rule 144. Qualified institutional buyers must have at least $100 million dollars of investable assets.

Under Rule 144A, RR cannot sell to who?

Under Rule 144A of the Securities Act of 1933, unregistered securities may be resold ONLY TO QUALIFIED INSTITUTIONAL BUYERS (QIBs). Qualified institutional buyers are entities that have at least $100 million of investable assets. The term institution includes insurance companies, trust funds, investment advisers, investment companies, employee benefit plans, or other types of institutional investors. Individual investors, even if they are deemed to be accredited investors, are not considered to be QIBs.

How are claims for more than the maximum allowable coverage are settled under SIPC?

Under SIPC, any investor filing a claim over the maximum coverage becomes a general creditor of the broker-dealer.

What happens under a floating rate system for currency? What is a fixed rate system?

Under a floating-rate system, currency values are established by supply and demand for the currency. Supply and demand for a currency may be influenced by the country's rate of inflation, level of interest rates, gold reserves, and trade deficit. The opposite of a floating-rate system is a fixed-rate system whereby countries agree to a currency exchange rate that will not fluctuate.

What can brokerage firms charge for? What is the stipulation?

Under industry rules, a brokerage firm is allowed to charge a customer for collection of dividends, holding of securities, and other services. Most brokerage firms do not charge for these services, but if they do charge, the amount must be reasonably fair and not discriminate between customers.

Can mutual funds or annuities be recommended for short-term investments or trading vehicles?

Under industry rules, mutual funds or annuities may not be recommended as short-term investments or trading vehicles. The fact that a product is no-load does not change this SRO prohibition.

According to SRO rules, what information must be obtained when an RR opens an account in which mutual fund shares will be purchased?

Under industry rules, the following items MUST be obtained when opening an account. 1. The customer's name and residence 2. Whether the customer is of legal age 3. The name of the registered representative introducing the account and the signature of the member or partner, officer, or manager who accepted the account 4. If the customer is a corporation, partnership, or other legal entity, the names of any persons authorized to transact business on behalf of the entity

What is variable universal life insurance?

Universal life insurance allow families to vary their premiums and death benefits based on current income levels and insurance requirements. Combine investment aspect of variable life and flexibility of universal. While variable life insurance will provide returns based on the performance of a separate account. A combination of the two types, called variable universal life or flexible premium variable life, is most appropriate.

If a customer is 65, and has a ROTH IRA of 350k, how much can it withdraw tax-free?

Unlike a traditional IRA, contributions to a Roth IRA are not tax-deductible, so the investor is contributing after-tax dollars. The advantage of the Roth IRA is that all the money accumulated in the account may be withdrawn tax-free after age 59 1/2 if the first contribution was made at least five years prior. So for traditional IRA, NONE could be withdrawn TAX-FREE... must pay taxes at ordinary income

In a custodian account, if minor passes away, what happens?

Upon the death of a minor, assets do not become the property of the custodian. The assets remain the property of the minor and transfer to the minor's estate.

When must duplicate account statements be required when it is requested?

Upon the written request by the employing member firm, duplicate account STATEMENTS ONLY (NO NEED FOR CONFIRMATIONS) must be sent if an employee of a member firm opens a brokerage account at another member, investment adviser, bank, or other financial institution. The rule applies to any person employed by a member firm (broker-dealer). There is no requirement to send duplicate statements if the customer is an employee at a financial institution. There is no requirement to send duplicate statements if the customer is an employee at a bank, investment adviser, or other financial institution.

How many stocks are in each Dow Jones for utilities, transpo and industrials?

Utilities - 15, transpo - 20, Industrials - 30

What should you buy if you believe volatility will increase?

VIX calls NOT VIX puts (VIX is measuring volatility)

To sell variable annuities to clients, person must hold? These annuities must be registered with who? What about fixed annuities?

Variable annuities are considered both insurance products and securities. As a result, an individual must be properly registered (Series 6 or 7) with a securities registration license and hold a life insurance license. Variable annuities are considered securities by the SEC and, therefore, must be registered with the SEC (have prospectus. Variable annuities must also be registered with the State Insurance Commission. Fixed annuities not regulated

What must happen to determine suitability for a variable annuity?

Variable annuity suitability rules require that contracts sold through FINRA members be forwarded to the representative's OSJ (office of supervisory jurisdiction) and be approved by a principal within 7 business days of receipt before being sent to the insurance company. If a principal does not approve the application, it must be rejected.

What is the difference between variable insurance and variable universal life?

Variable universal life policy combine flexibility of universal life policies with the investment aspect of variable life policies.... can adjust premiums and death benefit to meet changing circumstances

How do use volume in technical analysis?

Volume should move with the trend. If prices are moving in an upward trend, volume should increase (and vice versa). If the previous relationship between volume and price movements starts to deteriorate, it is usually a sign of weakness in the trend. For example, if the stock is in an uptrend but the up trading days are marked with lower volume, it is a sign that the trend is starting to lose its legs and may soon end.

Who votes on BOD and what are you using?

Vote is decided by shareholders with the MAJORITY OF SHARES

What kind of rights do shareholders of mutual funds have?

Voting rightts, proxies, and receiving semiannual reports

What does a person with a put spread want?

WED - widen, exercise, debit Debit = more money going out

Once warrants are issued, what do they behave like and how do they trade? Do they have short terms than rights?

Warrants behave like long term options and trade as an individual security after they are issued. They have long terms than rights.

What happens if you don't pay the Reg T?

When a customer purchases securities and fails to pay by the Reg T payment date (within 2 business days following settlement), the brokerage firm will sell out the securities and freeze the account for 90 days.

What happens when a member firm issues a research report?

When a member firm issues a research report, it must be approved by a supervisory analyst. A supervisory analyst must be registered as such with FINRA and is required to pass a separate examination.

What happens to a bond purchased at premium? What adjustments need to be made?

When a municipal bond is purchased at a premium, the bond's premium must be amortized to find an adjusted cost basis. If the bond is sold above the adjusted cost basis, the result is a capital gain. If the bond is sold below the adjusted cost basis, the result is a capital loss. If the bond is held to maturity, there is neither a loss nor a gain for tax purposes. This is because the adjusted basis would equal the par value after the premium is amortized.

What is the cooling off period?

When a new stock issue is going to be offered, a registration statement must be filed with the SEC. After the filing, there is a period when the SEC reviews the information to ensure full disclosure (this is the cooling off period) During the cooling-off period, a preliminary prospectus (red herring) is prepared to be used to receive indications of interest from the public. The issue must be registered in each STATE in which it will be sold according to STATE (Blue-Sky) laws. Prior to the completion of the final prospectus, a due diligence meeting is held where all concerned parties (issuer and underwriter) meet to insure that everything has been done properly

What happens to orders for ex-rights / dividend?

When a stock sells ex-rights / dividend Open or good-until-cancelled (GTC) orders that are entered below the market are automatically reduce by the DMM.

What happens if you stock split while you hold an option?

When a stock splits 2 for 1 (an even split), the number of contracts increases and the strike price is reduced proportionately.

What happens when a variable annuity contract holder dies during the accumulation period?

When a variable annuity contract holder dies during the accumulation period, the proceeds in excess of cost are taxable to the beneficiary as ordinary income.

How do you allocate bonds in a new issue?

When allocating bonds in a new municipal issue, presale orders normally have first priority. This is followed by group net, designated, and then member orders. The 5 MM in group orders and 5 MM in designated orders will be allocated. There are no bonds left for member orders.

When an account is frozen, customer must:

When an account is frozen, the customer must have in the account what is required to complete the trade before an order may be accepted. This means that the required monies or securities must be in the account prior to accepting any purchase or sale orders.

What is a fourth market trade? And why are trades made in large blocks?

When an institutional investor such as a mutual fund buys stock from the portfolio of an insurance company (another institution), it is considered a trade executed in the fourth market. This is the name given to the so-called market where institutions trade with other institutions. Trades between institutions will often be made in large blocks and without a broker, allowing the institutions to avoid brokerage fees

What are analysts most concerned about when looking at mutual fund expenses?

When analyzing a mutual fund's expenses, an analyst is concerned about the amount of expenses as compared to the amount of money managed by the fund. This comparison is made by calculating the fund's expense ratio (operating expenses divided by total net assets). The operating expenses include management fees (which is usually the largest expense) and the fee paid to the fund's custodian. Total net assets are the fund's assets minus liabilities. Sales charges are not considered expenses of the fund.

When do you need the client's signature to open an account?

When another person other than the account holder (the adviser) will be entering orders, the registered representative would require written authorization from the client granting the adviser the right to enter orders.

When does a new issue become marginable?

When approved for margin trading by the FRB, a new issue(MUTUAL FUND / NEW SECURITIES) becomes marginable THIRTY (30) days from the effective date of the offering.

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.

What happens when a municipal finance professional and her spouse sign a contribution check?

When both an MFP (municipal finance professional) and her spouse sign a contribution check, the contribution is considered to have been made by both and is split equally between the contributors On the other hand, if the MFP is the only person who signs the check, then the entire amount of the contribution is allocated to the MFP

What is dividends received deduction?

When firm invests cash in a stock and receives dividend in the future. <20 ownership: 70% reduced so 35 * (1-70%) 20 - 80%: 80% reduced >80%: 100% reduced

What must you do if you are going to invest in a DPP?

When investing in a DPP, the customer must verify that he meets all suitability standards. This can be accomplished by furnishing documents such as past tax returns and a statement of net worth.

What is needed to price a bond (determining yield or real price)?

When pricing a bond (determining the yield when price is known or determining the price when yield is known), the coupon, settlement date, and maturity are required. The number of bond years is used to determine the net interest cost when an underwriter is bidding on a new issue of municipal bonds.

What happens when securities are inherited?

When securities are inherited, the recipient's cost basis is the market value of the securities at the time of the deceased's death. The recipient's holding period for the stock will be long-term, regardless of the deceased's actual holding period.

When selling stock a customer, a mark-up should be based on what?

When selling stock to a customer, a markup should be based on the LOWEST OFFER ON THE NASDAQ SYSTEM, not the price the dealer paid to purchase the stock (dealer's inventory cost).

What is a proceeds transaction? How is the markup calculated?

When the proceeds of the sale of one stock are used to purchase another stock from the same broker-dealer, the transaction is called a proceeds transaction. In determining the markup the broker-dealer will charge, industry rules state that the firm should consider only the amount of money involved in the SALE to the customer.

When does a retail communication need to be filed with FINRA?

When the retail communication discusses a investment company

When used in reference to a market maker, what is the spread?

When used in reference to a Nasdaq market maker, the spread represents the difference between the price at which the firm is willing to buy (bid) and the price at which the firm is willing to sell (ask or offer) a security. For example, if the bid price is $21.20 per share and the offer price is $21.30 per share, the market maker's spread is $.10.

A when, as, and if distributed contract settles:

When, as, and if issued contracts are contracts for securities that are trading but are not yet available for delivery. They are also referred to as a when-issued (WI) security. FINRA determines when the date of settlement will be, i.e., when a sufficient percentage of the issue is outstanding.

What happens when you withdraw cash from SMA from short margin? What happens when you buy more stocks with SMA?

Your credit declines as does your SMA dollar for dollar Your Credit balance increases by the short sale proceeds (2x SMA) + and your SMA declines by total SMA

How much does SIPC cover in a margin account?

Will cover the customer's EQUITY in margin account

What can you do with a SMA in a short account?

Withdraw the excess equity or buy 2x the SMA (buying / selling power)

What are the taxes on withdrawals from a tax-deferred account? How does taxation work on an IRA account?

Withdrawals from a tax-deferred account are never taxable as a capital gain. The earnings on an IRA account grow tax-deferred. If only pretax contributions are made, the entire withdrawal is taxable as ordinary income. If an investor maintains an IRA account that has pretax and after-tax contributions and makes withdrawals, the IRS considers withdrawals to come from both sources. Therefore, a portion of the withdrawal is taxable and the other portion is tax-free.

What is the easiest way to boost yield for an investor?

Writing covered calls - The call premium received will increase the yield on her portfolio of stocks because it will add to the income generated by the dividends received from the stock.

When will YTM = YTW? and when not?

YTM = YTW when market rates are higher than current yield (discount). YTW will be less than YTC if the market rater is lower and bond may be called and lower than YTM (premium).

Do trades need to be reviewed by a principal?

Yes along with retail communications.

Are IRA contributions deductible?

Yes for traditional IRAs, no for Roth IRA

Can you short-sell in a margin account and cash account?

Yes you can short sell in margin account; cannot short sell in cash account

Can Treasuries, munis and corporate bonds traded OTC?

Yes!

Can an employee of a FINRA member firm open an account or place an order at another member firm?

Yes, an employee of a FINRA member firm who wishes to open an account or place an order at another member firm must notify her firm and the executing firm, in writing, prior to opening a securities account. Since the RR is the custodian for the UTMA account, she will be placing orders for this account.

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.

Can you have both a pension and IRA? What must your IRA contributions be made in?

Yes. Contributions must be made in cash.

What is yield to worst?

Yield to Worst: Yield to worst is calculated on all possible call dates. It is assumed that prepayment occurs if the bond has call or put provisions and the issuer can offer a lower coupon rate based on current market rates. If market rates are higher than the current yield of a bond, the yield to worst calculation will assume no prepayments are made, and yield to worst will equal the yield to maturity. The assumption is made that prevailing rates are static when making the calculation. The yield to worst will be the lowest of yield to maturity or yield to call (if the bond has prepayment provisions); yield to worst may be the same as yield to maturity but never higher. YIELD TO WORST MUST BE ON THE BOND's CONFIRMATION

What is a yield-based call? And how is it settled?

Yield-based calls (which are yield-based options) increase in value when interest rates rise, also creating a viable hedge. Yield-based options are cash-settled options based on a particular TREASURY (not corporate) security's movement in yield. If an investor expects yields (interest rates) to rise, he will buy yield-based calls or sell yield-based puts. Traded on the CBOE and strike prices represent the yield on the underlying security

Even if your account is restricted, if you have SMA you can...?

You can still withdraw the full value of SMA in cash

If you have capital losses what can you do with them?

You can write $3k off ordinary income this year, and carry the rest forward

What happens for existing property DPP?

You have immediate cash flow from rentals and depreciation allowances that reduce taxable income

If you have both long and short account, how do you see how much SMA they have? How do you figure out how much cash you can withdraw?

You look at EACH ACCOUNT SEPARATELY TO DETERMINE SMA SMA = HOW MUCH CASH YOU CAN WITHDRAW

What happens if you discover your client is on the OFAC list?

You must contact the federal law enforcement authorities immediately if you discover that a client is on the list of suspicious persons and entities maintained by the Office of Foreign Assets Control (OFAC). You must also freeze the account and block further transactions.

What is par value of bonds? Preferred stock?

bond: 1000; p/s: 100

In margin account with 20k market value, 50% equity, what happens when you put in 5k more cash?

market value is 20k, debit goes down to 5 k, equity is 15k, SMA is 5k

What is an easy-to-borrow list? Hard-to-borrow list?

n order to aid in the process of locating securities, the SEC has accepted the use of Easy-to-Borrow lists. These lists, which must be less than 24 hours old, provide reasonable grounds for belief that a security on the list will be available to be borrowed. The securities on the list must be readily available to avoid fails to deliver. Use of an Easy-to-Borrow list expedites the fulfillment of the locate provision. A Hard-to-Borrow list refers to securities that a clearing broker-dealer may have difficulty in borrowing.

How far in advance do retail communications concerning options have to be filed?

retail communications concerning options used prior to delivery of the options disclosure document must be filed 10 calendar days prior to use.

What accounts move around in the short margin?

the Credit balance will not move around; only the SMV, which affects equity

If a put or call option expires, the amount of the premium paid by the purchaser of the option is considered for tax purposes to be:

the amount of the premium paid by the purchaser of the option is considered for tax purposes to be a capital loss at the time the option expires.

What are broker's broke communication system used for?

• Broker's broker communication systems are primarily used to carry bids and offers in the secondary market.

What happens if a stock is held-short-term (one year or less) and a put is purchased? What happens when put is sold or expired?

• If a stock is held short-term (one year or less) and a put is purchased, the holding period is terminated and would not resume until the put is sold or expires. When the holding period resumes, it will do so as if the stock was purchased on that day. If a long-term holding period were established on the stock, then the acquisition of the put would not affect the investor's holding period.