Series 7
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.
1 Mil
$.001
If I place an order to buy 1,000 shares of XYZ at $30 and XYZ declares a 50% stock dividend, what happens?
1,500 shares (to reflect dividend) at $20 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
7.00 basis
7% (basis = yield)
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.
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.
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.
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 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 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.
When is a propsectus required?
A prospectus would be required for a primary distribution as well as a registered secondary distribution.
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 are S&P's rating for bonds? Best and worst rating for munis?
AAA, SP-1 (best) and SP-3 (worst)
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.
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 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
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.
What is the Bond Buyer 25RB index?
Average yield on 25 revenue bonds with 30-year manturities
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.
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 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 a straddle?
Buying a put and call with the same strike price and maturity - expect volatility Max Gain - Unlimited Max Loss - Premium paid
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 is the COBE?
Chicago board options exchange - regulated by SEC
List order of highest yield: corporate, muni (G.O), muni (Rev.), Treasury
Corporate, Treasury, Muni (Rev.), Muni(G.O.) (lowest yield b/c exempt from federal income tax)
FINRA: Correspondence
Correspondence, which is defined as any written or electronic communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period.
What is the D/E ratio?
D/E = Total Debt / (Common stock + P.I.C + R.E)
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 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.
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 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.
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.
When should you invest in a variable annuity?
Generally, an annuity should only be considered after a person contributes the maximum amount to the qualified plans that is sponsored by his employer since it provides for deductible contributions, tax-deferred growth, and the potential for a company match.
How are government bonds taxed? How are munis taxed?
Government bonds taxed only federally; munis only taxed at state / local level
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.
What happens if FRB increases discount rate?
If the FRB increases the discount rate, the general level of interest rates increases. The prices of long-term bonds decreases more in price than the price of short-term bonds (duration risk).
What must mutual funds do to charge the maximum 8.5% sales charge?
In order to charge the maximum 8.5% sales charge, mutual funds must offer breakpoints and rights of accumulation.
What is a inverse ETN?
Inverse ETN would pay the opposite of the benchmark that is being tracked and would be suitable for a person interested in short-term trading
What are joint accounts for?
Joint accounts are for individuals; a custodian account is not considered a joint account
What is difference b/w long-term and short-term gain?
Long-term gain - security held for >1 year (taxed at capital gains - 20%); short-term gain - security held for <1 year (taxed at ordinary income)
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
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
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.
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 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 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 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.
What is a discount bond priced to?
Priced to matuity
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)
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 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 is a second mortgage bond?
Second mortgage bond: A type of subordinate mortgage made while an original mortgage is still in effect. In the event of default, the original mortgage would receive all proceeds from the liquidation of the property until it is all paid off. Since the second mortgage would receive repayments only when the first mortgage has been paid off, the interest rate charged for the second mortgage tends to be higher and the amount borrowed will be lower than for the first mortgage.
What back subordinated / unsecured bonds?
Secured only by the full faith and credit and no specific collateral
What happens when FOMC sells treasuries? What happens when FOMC purchases treasuries?
Securities used are Treasury bills. FOMC wants to influence money supply. 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
FINRA: Public appearances
Situations where employees associated with a broker-dealer or sponsor participate in a television or radio interview, seminar, or forum, or make a public appearance, or engage in speaking activities that are unscripted and are not otherwise considered retail communication. Social media sites, which permit real-time communication or interactive, electronic forums, fall under the guidelines of a public appearance (e.g., Facebook, Twitter, and LinkedIn).
What is 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 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 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 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
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 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 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.
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.
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.
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 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
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 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 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
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.
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
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 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 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 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 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.
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.
