5/8/2023 Flashcards
Is there an exchange of commodity at the end of a futures contract
No
But the must settle the contract therefore there is an obligation for the buyer and seller of the contract
you are borrowing what when you sell short
Borrowing Securities
(Not Money)
With Options when is the Max Gain Infinite
When you Buy a Call
With options when is the Max Loss Infinite
When you Sell a Call
AND
Are short the stock
(the price could go up infinitely and to cover the option you first need to buy the stock)
Words that are in the same category as Principal
Dealer
Marker Maker
Markup / Mark down
Words that are the in the same category as Agency
Broker
Agent
Commission
Difference between a Principal Trade and a Agency Trade
Principal -
Buys/Sells you the Stock from:
Their Own Inventory
How they Profit:
Marks Up/ Down the Stock
Agency -
Buys/Sells you the Stock from:
The Market
How they Profit:
Charges a Commission on the Sale
Do Agency and Principal Trades cost different amounts
No
they charge they same amount its just different in the method its charged
(Mark uUp/Commission)
Day Trading Accounts Minimum Equity
$25k
AT ALL TIMES
if under it needs to be covered the same day
Can Day Trading Account Be Short:
-Securities
-Equity
Securities - Yes
Equity - Kind Of - Must follow Margin Maintenence Requirement (25% must be equity at all times)
If less they only have till the end of the day to cover the margin call
Time Limit for Covering a Margin Call on a Day Trading Account
by the end of the same day.
(unlike normal Margin Accounts where you need to Cover it with in 2 days)
2 things that Day trading accounts have to ensure by the end of every day
$25k minnimum Equity
and
Any Margin Calls are covered
(unlike noraml margin accounts = 2 days)
Time Weighted Return
DOES NOT include
money being contributed and withdrawn from your account
Views: Time
as being a big cost of the investment
Dollar Weighted Return
DOES include
money being contributed and withdrawn from your account
Views: Dollars
as being a big cost of the investment
(focuses on cash flow a little more than Time Weighted)
Holding Period Rate of Return
Ignores everything that happened during the time frame and just looks at the return from
Start to Finish
Difference Between Yield and Return and there formula
NONE - THEY ARE THE SAME THING
Income (usually Interest and dividends) + REALIZED Capital Gains (not unrealized)
/
Cost of Buying Security
Realized Capital gains mean they sold the securities to make the gain official
CY
What we get in INCOME over 1 year / What we bought the security for
Emphasis on 1 YEAR
Things that would be included in CY
Dividends
Interest
(both are like receiving Income)
Things that would NOT be included in CY
Capital Gains Distribution
Anything that has to do with the PRINCIPAL,
not the INCOME a security Generates
Exempt Issuers
-US Government
-State and local Governments
-Foreign National Governments where we have diplomatic relations
!!!!Canada is the only foreign country given exemption at the state level. The country is exempt but the local foreign entity is not (the city isn’t but the country is)
-Banks, Insurance companies, Credit Unions
!!!!BUT NOT their Holding Companies
-(Consolidated carrier) Trucking, railroads, airlines
-Non-Profit Organizations
(Includes Churches and really any other Non-Profit)
NOTE: the Textbook pg 88 lists a bunch more and differs a little bit when in doubt trust the textbook
Exempt Securities
- Commercial Paper
- Bankers Acceptances
Exempt Transactions
(6 of them)
Institutional (Transactions for institutions)
Issuer to Underwriter
Unsolicited orders (If the advisor doesn’t sell the stock to a client but the client comes to them)
Private placements (Unregistered restricted stock)
Court “like” transactions (Executor, Bankrupcy, Court Ordered Etc…)
Pre-Organization Certificates - IF NO COMMISSION PAID AND LESS THAN 10 SUBSCRIBERS
How many Non-accredited investors are allowed in a Private Placement for it to still be an exempt Transaction
Up to and Including 25 Non-accredited Investors
When you hear the Word Administrator always Assume
they are talking State
NOT federal
Soft Dollar Compensation
Company A Compensating Company B for their services in anything other than Actual Cash
If it doesn’t help with the actual services offered to the A company, its not allowed
Examples of Allowed Soft Dollar Compensation
Research
Reports
Software
Examples of NOT Allowed Soft Dollar Compensation
Office Rent
Salaries
Phone Bill
Trading Discretion Definition
Making trading decisions without your client
Criteria for determining if there needs to be trading discretion or not
Client Must tell you ALL of these things otherwise you need discretion
1) Buy or Sell
2) EXACT Amount (either # of shares OR $ amount –can be one or the other–)
3) which SECURITY (A Specific Security not general industry)
Types of Trading Discretion
and what they are
Limited POA - Can only make trades
Full POA - Advisor can do whatever they want to the account
(ie: Trade, Re-Register Securities, Take $ out of account)
an Advisors Conflict of Interest needs to be reported to:
Their
Broker-Dealer
and
IA
What Constitutes a
Conflict of Interest
All activities the Advisor does outside of the business that might be a potential conflict
Doesn’t matter if they get Compensated for the activity or not it still needs to be reported
An Advisors Criminal Activities Must Be Reported To:
Their
Broker-Dealer
and
IA
Which Criminal Activities of an advisor Need to be reported to their Broker-Dealer and IA
All Convicted:
Felonies
and
Misdeminors that were securities or business related
(must be convicted not thrown out)
Is Loaning Money to Client Allowed
No
Unless they are an immediate Family Member
Is Receiving a Loan From a Client Allowed
No
Unless they are in the business of loaning money out
(legitimately cant be the mob or your uncle Frank who doesn’t officially loan out money)
Can you Share in the Profits/ Losses of a clients account
Yes
BUT - you must share in the Profits AND the Losses
AND
have prior approval of your IA/Principal
Selling Away
Selling Securities outside the realm of your IA/BD
(they must have an agreement that they can sell those securities)
Is a Violation
Churning
Is A Prohibited Practice
Excessive transactions. An advisor doing excessive transactions with clients accounts not for the benefit of the client but rather to increase commissions
Reverse Churning
Is A Prohibited Practice
Taking a customers account that doesn’t trade very much and putting it in a fee based account to get more commissions on it and its not in the clients best interest
Capping
Is A Prohibited Practice
trying to keep a stock price LOW
Ie: entering in a large amount of sales orders before the end of the trading day to decrease the stock price
Pegging
Is A Prohibited Practice
trying to keep the stock price HIGH
Ie: entering in a large number of buy orders before the end of the day to increase the stock price
Marketing the Open
Is A Prohibited Practice
Trying to manipulate the market before the Market Opens
(IE: could use Capping or Pegging)
Marketing the Close
Is A Prohibited Practice
Trying to manipulate the market before the Market Closes
(IE: could use Capping or Pegging)
Backing Away
Is A Prohibited Practice
ONLY APPLIES TO MARKET MARKERS
AND
ON TRANSACTIONS OF 100 SHARES OR MORE
Backing away from a transaction after being connected with the buyer/seller because something like the news changes the price.
Front Running
Buying your firms Shares Before Your Clients
(pushes up the price for your client)
Trading Ahead
Is A Prohibited Practice
Placing a trade just before the release of a research report (while knowing information about the report before its released)
Painting the Tape
Is A Prohibited Practice
Similar Terms:
matched purchases / matched sales / washed sales
Buying and selling stocks multiple times to people who are in the loop with you to try and create false activity in the stock in order for it to look active.
Ie: two people sell the stock back and forth to each other to try and make the stock activity look good.
Guarantees in the industry are only allowed by
- The US government
- An Insurance company
- A parent company guaranteeing the obligations of a subsidiary
Personal Securities Transactions Report
Advisors must use this to disclose
all their own personal Securities Transactions
Done Every Quarter
Personal Securities Transactions Report - Which Securities Dont Have to Be Reported
-Treasury
and
-Money Market
Securities
Political Contributions Limits
If Candidate is within your jurisdiction
(You can participate in a vote)
=$250
If NOT within your jurisdiction
(You CANT participate in a vote)
=$100
Rules on gifting to clients
Max $100/yr worth of gifts
If you go with them to the event = Doesn’t Count
(as long as its within reason taking them to Fiji is too much)
Also doesnt count life events
(weddings, Baby etc…)
(Also needs to be within reason/ whats appropriate for the life event)
CTR
Currency Transfer Reports
Used to report suspicious and potential money Laundering activities to FINCEN
Items required to be reported:
-Transactions of $10k or more within 15 days of receiving the currency
(need to be reported within 15 days)
-Wire Transfers of +$3k or more
Types of Intrastate Offerings
Qualification - If Offering is in Only 1 State
Coordination - If Offering is in More than 1 State
(registers in original state and Federally then each other state just does a Filing Notice as their form of registration)
Filing Notice - If its Already Federally registered
(not a form of registration)
What type of registration does Secondary offerings do
Nothing except for notice filing
because its already been registered in the Primary offering
Matched orders
Forms of painting the tape that involves more than 1 person that’s “In on it”
Is a violation
Washed Sales
Forms of painting the tape that involves ONLY 1 person that is “In on it”
They sell shares with one broker Dealer then Buy them shares from themself with another BD
Is a violation
