SIE
Who is a qualified institutional buyer?
Institutions managing a securities portfolio of over $100mm, or broker dealers with a portfolio larger than $10mm
who uses an official statement?
Only munis (not required)
What securities settle at t+1?
Options, government securities
What are examples of non-qualified retirement plans?
Payroll deduction and deferred compensation plans
What do all qualified plans allow for?
Pre-tax contributions, tax deferred growth, and distributions taxed as ordinary income (tax distributions from ANY retirement plan are ordinary income, never capital gains)
What is the allocation priority found in municipal syndicates? 8.4.1.1
Presale > group > designated > members (ONLY $2mm of member orders can be filled)
If you want to find out about 12b-1 fees, where do you go?
Prospectus
ABC is an entity that manages $125mm in securities not affiliated with itself on a discretionary basis. According to the securities regulations, ABC is an example of what?
QIB
What is the process of updating an index mutual fund's portfolio to mirror changes in components of the underlying asset?
Reconstitution
What is it called when a issuer replaces a 5% bond with a 3% bond?
Refunding
What are mutual funds and variable annuities subject to regulations wise? 12.3.1
Securities act 1933, Securities Exchange Act of 1934, Investment Company Act of 1940, Investment Advisors act of 1940
The frequency of mutual fund shareholders reports sent to investors, detailing performance/holding
Semiannually
How are the distributions taxed in a 403(b) or other qualified plans?
Since the investment is pre-tax to fund the account, all distributions are taxed as ordinary income
What is restricted stock?
Stock that has never been registered . This type of stock is received through private placements, stock benefit plans, etc. Holding period is 6 months.
Who sets the margin requirement for OTC stock?
The federal reserve board (FRB) , it also decides which stocks are marginable on a case-by-case basis
if today, July 19th a company wants to tender an offer, for what length of time does that tender offer stay outstanding to give investors ample time to consider?
20 days (initial tender is 20, and adjusted or amended tender is another 10 days)
What is the usually denomination for a negotiable CD?
100k
The maximum period of time in which mutual fund share purchases can be accumulated for purposes of earing mutual fund breakpoints, under a letter of intent (LOI)?
13 months from the date the LOI is submitted, can also be backdated up to 90 days to cover prior purchases
A T Bond pays interest on the 15th of April & October. A trade occurs on Friday January 8. How many days of accrued interest does the buyer owe the seller?
88 days (15th-31st oct, 30 nov, 31, dec, 10 in Jan as deal settles - not including- MONDAY the 11th)
What is a direct participation program (DPP? What are some risks?
A DPP is an investment vehicle that allows investors to directly participate in the cash flows and tax benefits of the underlying entity without holding an active management role. DPPs are one of the few managed investments that can serve as a tax shelter, as investors participate in not only the income and gains from the underlying investment, but also the losses which can be used to reduce certain types (other passive gains) of taxable income. They are taxable at ALL levels. The risk is that DPPs operate as blind pools, and are highly illiquid so they should be used for sophisticated investors.
what is a contingent deferred sales charge?
A back-end sales charge that investors pay when they redeem their mutual fund shares within; generally this fee decreases each year
What is the FINRA violation which involves encouraging a customer to purchase shares at a point below an available sales charge reduction?
A breakpoint sale
Who are variable annuities usually best for? 12.3.3.6
A desire for growth to ensure income lasts for life; because they tend to have higher charges compared to other investment opportunities because they have higher possible returns and can keep up with purchasing power (unlike a fixed annuity)
What can be used to hedge a short stock position?
A long call
Is a sell stop order entered above or below market price?
A sell stop order is entered below the current market price to protect a loss in a long position, or is entered in anticipation of a stock breaking below a support level and decreasing significantly in price
What is a class C share and what is the typical fee structure?
A share meant for those who want short-term mutual fund investments, but they tend to have the highest fee structure which is a level load (12b-1, annual expenses, and either front-or back end sales load
What is a surrender charge? What does it do the the value of an account, what does it do the ROI?
A surrender charge applies when money is withdrawn from the annuity within a certain period - prior to annuitization - of a purchase payment (these commonly apply for 6-10 years), and are a way to incentivize holding the account for longer. They negatively impact the owner's return AND reduce the value of the account
What is an economic stabilizer?
A way for a government, during a recession, to increase GDP by cutting taxes, introducing new spending programs, etc.
the upward adjustment in the price of a discount bond
Accretion
What are the three main categories of income as defined by the IRS? 5.1
Active, passive, portfolio income; passive income does not include earnings from wages, active business participation, or income from dividends, interest, or capital gains.
An individual is currently contributing to her corporate retirement account. During this time she may do what?
Also contribute to an IRA
What is a unit investment trust?
An investment company that issues redeemable securities representing an undivided intertest in a trust. As with mutual funds, no secondary market exists. However, unlike management companies, there is a fixed portfolio with no active management (but is supervised)
When must the MSRB Investor Brochure be furnished to customers? 14.4.10.2
Annually; Each year firms are required to provide investors with a notification of the investor brochure (this explains and describes the protections available under MSRB rules and how to file a complaint)
When might a bullish market trend in the stock market begin?
Before the general economy shows clear signs of recovery
Leading indicators 10.1.4.1
Bond yields, building permits, manufacturing activity, stock market indices and averages, PPI, layoff rates average weekly unemployment insurance claims, changes in business inventories.
Patty is short 1,000 shares of ABC. She still believes that ABC will decline, but wants to make sure that she limits her potential losses on the position. How would you advise Patty to hedge this position? 6.2.4
Buy calls; in this case buying calls is a better choice as it would protect from the stock going higher (regardless of how high), while writing a put will provide a hedge for only the amount of premium she receives
If an investor is long blue chip stocks and wants to hedge their position, what should they do?
Buy index puts; when an investors has a diversified portfolio, it is best protected through purchase of broad based index put options because if the value of his portfolio weakens, the value of the put options will strengthen
Is a CD FDIC insured? what about a BA? 3.6.3
CD is, but a BA is not (although the bank deposits on which BAs are drawn are)
Which share class has the lowest 12b1 fees?
Class A shares
A type of mutual fund share classs in which investors pay no upfront sales charges, but rather contingent deferred sales chare (CDSC) when they redeem shares
Class B shares
What the of management company shares can be traded in the secondary market?
Closed End
A client owns 300 shares of ABC stock and has written a call 3 options on ABC to provide some downside protection on the shares. What is this client's breakeven? What type of an options position is this?
Covered call; Breakeven is when ABC is trading at the price of the share minus the premium received per contract
Who is the entity responsible for holding and safekeeping a mutual fund's securities and cash?
Custodian
what do redeemable securities mean?
EOD trading only, no secondary market (only to the issuing company); only mutual fund and UIT
what types of investment accounts are passively managed?
ETF and UIT
When do employees of ERISA plans have contributions vest?
Employee funds are immediate, employer funds are 100% vested after 5 years of service
What types of securities in which mutual funds can invest?
Equities, corp bonds, money market instruments, and other registered securities (CANNOT short stock or use leverage)
what is a contract where the client holds option contract which can be assigned or exercised at the expiration date only
European style
What is an exchange traded note (ETN)?
Exchange traded notes an exchange traded, unsecured debt instruments of an issuer, usually a broker-dealer, but is not backed by a separate pool of assets (unlike an ETF) and have credit risk. The fact that ETNs may be exchange traded, however, does not mean that they should be thought of as equity characteristics
what is safer, a GO or revenue municipal bond?
GO bond
Who is not included in the definition of immediate family?
Grandparents, aunts/uncles, cousins
Why would a customer's options account only be allowed to liquidate existing positions?
If the customer has not signed and returned the options agreement within 15 days of account approval their account will only be able to close open positions
When do traditional IRA contributions (set up by individuals who contribute their own income) vest?
Immediately
How much control stock can be traded?
In a 3 month period (90 days) shares sold cannot be greater than (1) 1% of the outstanding shares of the same class being sold (2) the average reported weekly trading volume the four prior weeks proceeding the sale
What should firms be most concerned about when it comes to investor protection as they review requests for outside securities activity?
Investor protection; procedures should call for restriction or prohibition of the activity if it compromises investor protection. If the outside securities activity is not for compensation, the rep must still notify the firm, but permission is not required
In what type of investment fund are investors not able to trade intra day?
Investors do not have the ability to trade open-end investment companies during the trading day. Pricing on shares of mutual funds is typically done once per day, at the close of the day's trading
What does a firm need to do in order to start business as a broker-dealer? 13.2
It must have appropriately qualified associated persons, have filed a from BD, satisfied state requirements, become a member of SIPC, and a member of SRO (registration with the SEC is not required)
What must a company meet to list on an exchange like the NYSE? 9.3.1
It must meet the original listing standards, and continue to meet the standards for maintaining its listing (which are typically less stringent than the original standards)
What is the securities act of 1934?
It regulates the secondary market, including the US financial markets and their participants, requiring that participants be registered. All US exchanges and OTC markets are subject to the SECs oversight, as are broker-dealers and their reps. The purchase, sale, and exchange of securities are regulated, as well as anti fraud provisions. The SEC has the power to regulate the solicitation of proxies, regulate the activities of members of national securities exchanges, and provides rules for the segregation of securities owned by clients.
account owned by two people where the survivor becomes 100% owner upon other's death
JTWROS (joint tenants with rights of survivorship)
what pays monthly dividends?
MBS, money market securities
what type of LP would be suitable for retail investors?
MLP; it sells units which trade on the exchange
The share price a mutual fund investor pays by buying shares under a letter of intent (LOI)
NAV + sales charge applicable on the quantity of shares the investor has pledged to buy in the LOI
When can a registered rep pay a customer a finders' fee?
NEVER; a finders' fee for directing business to a broker-dealer is not allowed
Are registered reps that are employees of broker dealers, but who personally do not deal with munis restricted in their contributions?
No, as long as you not a municipal issuer or securities professional
How are treasury bills quoted?
On a discounted yield basis
What is late trading?
The prohibited practice when mutual fund orders are received after the close of the business day, and are filled at that day's price rather than the next day's price
Who has the authority to regulate the extension of credit by broker-dealers?
The securities act of 1934 gives the federal reserve board the right to regulate the extension of credit by broker-dealers
What does the time value of an options contract represent?
The time value represents the amount of an option premium in excess of its intrinsic value. For options that carry no intrinsic value (out of the money), the entire premium is time value
GNP 10.1.2
The total market value of goods and services produced by the residents of a country, even if they are living abroad
GDP 10.1.2
The total market value of goods and services produced within a country, regardless of the nationality of those who produced the item
Who is responsible for issuing and cancelling certificates?
Transfer agent (also tracks registered owners of the securities)
what are exempt securities under securities of 1933?
US government and agency securities Municipal bonds Securities issued by nonprofits Commercial paper and other short term corporate debt with a max maturity of less than 270 days Commercial bank securities Rule 147 (intrastate offerings) Reg D (private placement) Rule 144 (restricted stock) Rule 144A (restricted stock sold to qualified institutional buyers)
What is the riskiest options position?
Uncovered call writing. The potential loss is unlimited, because if the call is exercised the writer will be obligated to repurchase the stock at a higher market value, for which there is no maximum.
who does the MSRB directly regulate?
Underwriters, traders, and salespeople of municipal bonds (NOT the municipality or issuer of the bonds)
What would cause a representative's account to be deemed inactive? What is that rep allowed to do (if anything at all) at his/her firm?
When a FINRA registered person fails to complete the continuing education in a timely manner, their registration will be deemed inactive. During this period the individual may not engage in any activities that require registration (but can do any activities that do not require FINRA registration)
What is position trading?
When a firm makes a market in securities and is trading for its own account to make a profit
Do non-qualified retirement plans offer tax deferred growth to the investor? 12.1
Yes
what is selling dividends?
a violation in which a registered rep sells a mutual fund to an investor right before the fund pays out a dividend
investors who can buy a reg d private placement
accredited: either (1) net worth >1mm without real estate or (2) income over 200k last 2 years and going forward (300k for couple)
How often must a member firm re-verify a customer's account information
every 36 months (3 years)
which part of the dividend process is not determined by the BOD?
ex-dividend date
why would you sell options?
income
what types of taxes can GO bonds use?
income, sales, licenses and fees are the main sources of revenue (also real estate / ad velorum, but NOT AT state level)
a issuer replaces a 5% bond with a 3% bond
it is the ex-dividend date
a retirement account for self-employed people
keogh (HR10; house resolution)
What type of fund is usually sold with no sales or liquidation fees?
money market funds
if a REIT passes the 75/75/90 rule then how are they taxed? what can they pass through?
not taxed at corporate level, only at investor level; still can only pass through gains
wen a corporation pays a cash dividend, what happens to the company's working capital?
nothing
what are government securities taxed at?
only federal, not state and local
if you put money into a retirement plan pre-tax, how will you take distributions?
ordinary income
what is the average person putting fund into their variable rate annuity? pre or post tax? (if you go out on your own to do it)
post tax, people who get to do pre-tax are those who are school teachers, etc. (403b, etc.)
Who does the FOMC purchase t-bonds from in the market?
primary dealer
as an investor, how do you find out about breakpoints of a fund?
prospectus
what is the safest municipal bond?
section 8 housing authority bonds (not only backed by housing income, but also full backing of federal govt)
who is paid when in a LP bankruptcy? why are LPs risky?
secured lenders, unsecured lenders (general creditors), LPs, GPs; no liquidity
tom owns facebook, but wants to increase the return to his equity premium what should be do?
sell options
in a stock mutual fund, an investor wishes to sell shares at a profit and pay tax at long-term capital gains rates, this can be done by:
selling shares that have been held for more than 1 year (12 months)
When do agency securities settle?
t+2
an investor has received a $300 dividend from his holdings in a REIT. The shares have been held for more than 60 days, the dividend will be taxed how?
taxed as ordinary income (dividends on REITS are taxed as ordinary income, even if the REIT is receiving favorable tax treatment due to the 75/75/90 rule)
