66 QuickSheet Flashcards
What act has to do with regulating securities?
Securities Act of 1933
Nonexempt new issues can only by sold by?
Prospectus
What can be issued prior to a registration’s effective date?
Indication of Interest
What act has to do with regulating the registration process of persons and exchanges?
Securities Exchange Act of 1934
Margin requirements are determined by?
Board of Governors of the Federal Reserve System as provided in the Securities Exchange Act of 1934.
When equity drops below 25% in a margin account, what happens?
Maintenance margin call is sent to client
What are “house” calls?
Maintenance calls that are set at a higher level than typical maintenance calls as determined by the issuer.
Describe positive margin.
Profits exceed Interest Cost
Three types of Investment Companies
- Face-Amount Certificates
- Unit Investment Trusts
- Management Companies
Under the USA, all professional’s registrations and withdrawals take place when?
At noon, 30 days after completion of application.
Difference in registration expirations of people and securities?
People- Expire on Dec 31st every year.
Securities- Expire one year from registration date.
Who are not considered persons?
- Minors
- Dead People
- People declared mentally incompetent
What things are not considered securities?
- Retirement plans
- Non-variable life insurance contracts
- Collectibles
- Commodities
- Condos used as personal residence
- Currencies
The term “sale” includes?
- Transfer for value
- Gifts of assessable stock
The term “sale” does not include?
- GIfts of non-assessable stock
- Stock dividend or stock splits
- Bona Fide pledge or loan
Termination procedures for an agent?
Notification to administrator by both agent and broker/dealer.
Termination procedures for an IAR with state IA?
IA notifies administrator.
Termination procedures for an IAR with federally covered IA?
IAR notifies administrator.
Describe notice filing.
- Generally used by investment companies registered under the Investment Company Act of 1940.
- -Admin may require docs sent to SEC
- -Quantity of securities being sold in state (fee)
Describe coordination.
Coordination of state registration with federal registration.
Registration by coordination is accomplished by filing a registration statement with the administrator containing:
- Three copies of latest prospectus
- Copies of articles of incorporation
- Amendments to prospectus filed with the SEC.
Coordination is effective when?
At the same time as federal registration.
Describe qualification.
- Primarily for intrastate issues.
- Have to submit anything admin requests.
- Effective when declared by admin.
What are the most common exempt transactions?
- Isolated nonissuer transactions
- Unsolicited orders
- Transactions with banks
- Transactions between issuer and underwriter
- Transactions by fiduciaries
- Private Placements
An exemption from registration for all securities professionals when dealing with vacationing clients.
Snowbird Rule
Broker Dealer record must be kept for how long?
3 years
IA records must be kept for how long?
5 years
A civil suit under the terms of the USA must be filed within?
3 years of the alleged infraction or 2 years from discovery of a violation. Fed Law is 1 year from discovery.
The offer to return a customer’s money, plus interest, less any income received, when a sale has taken place in violation of the USA.
Right of Rescission
Used to stop registration of securities issues.
Stop Order
Stop orders many be appealed to the appropriate court within how many days?
60
Used to halt activities of persons.
Cease and Desist
The suspension of registration of any person or security.
Summary Action
Maximum criminal penalty under USA?
5,000 and 3 years jail
Maximum criminal penalty under federal law?
10,000 and 5 years jail
If IA has more then 110 million, they must register as?
SEC registration as federal covered advisor
if IA has less than 100 million, they must register as?
State registered advisor
If any clients of an IA are investment companies, IA must register as?
Federally covered advisor
LATE
Lawyers, Accountants, Teachers, Engineers
A term used by an IA whose principal business consists of rendering investment advice and a substantial portion of the IAs advisory business involves investment supervisory services.
Investment Counsel
An IA is exercising discretion must have what kind of surety?
10,000 net worth or a surety bond
An IA is maintaining custody must have what kind of surety?
35,000 net worth or a surety bond
Rule on use of third-party research reports?
- If distributed, credit must be given.
- If used for basis of an IAs report, no mention is necessary.
What is it called when an IA represents both sides and receives commissions from both sides?
Agency Cross Transaction
Under state and federal law, a person is deemed to be in control of an IA with an ownership level of at least..
25%
If IA has custody of funds, statements must be sent to clients..
Quarterly
What form specifically requires information on how an adviser will be compensated?
Form ADV
What form is the annual financial examination of an IA and who is it completed by and submitted by?
Form ADV-E
- completed by IA
- submitted by independent accountant
Says that investors must act with reasonable care, skill and caution.
Uniform Prudent Investor Act
Insurance that’s pure protection and has no cash value
Term
Insurance that builds guaranteed cash value with policy loans
Whole life
Insurance with flexible premiums-and with insufficient funds, could cause policy to lapse.
Universal Life
Describe variable life insurance.
- Separate account
- Guaranteed minimum death benefit
- Cash value based on underlying account
Options, futures, and forwards are?
Derivatives
An order that instructs the BD to buy a specified security at or below a certain price or to sell a specified security at or above a certain price.
Limit Order
Used to “stop loss” by persons with a short position in a stock. Can accelerate the direction of a bull market.
Buy stop order
Used to “stop loss” by persons with a long position in a stock. Can accelerate the direction of a bear market.
Sell stop order
Investing a fixed dollar amount on a regular basis and purchasing at different prices.
Dollar cost averaging
Account who’s investor looks for stocks that trade with high PEs and low dividends. High price to book ratios and earning momentums.
Growth
Account who’s investor looks for stocks that trade with low PEs and high dividends. Focuses on financial statements.
Value
Investor thinks majority is wrong, so does opposite of what most investors are doing.
Contrarian
Done periodically to bring a portfolio back to target allocation percentages.
Rebalancing
Someone who attempts to profit by finding the best performing sectors of the economy and buying stocks in that sector.
Top-down analyst
Someone who attempts to profit by identifying individual companies that will outperform others in the industry.
Bottom-up analyst
Placed in a portfolio to reduce inflation risk
Tangible assets
A type of trust that distributes all income each year.
Simple
A type of trust that may distribute or retain income, and income is reported on Form 1041.
Complex
Sole proprietors file their business information on a..
Schedule C
What kind of business use a Schedule K-1?
LLCs, and shareholders in S corporations
C Corps report income on?
Form 1120
Small Cap market capitalization
300 million to 2 billion
-Russell 2000
Mid Cap market capitalization
2 billion to 10 billion
-S&P 400
Large Cap market capitalization
More than 10 billion
-S&P 500
Working capital
Current Assets-Current Liabilities
Current Ratio
Current Assets / Current Liabilities
Quick Ratio (Acid Test)
(Current Assets - Inventory) / Current Liabilities
Total Capitalization
Long Term Debt + Net Worth
Debt Ratio
Long Term Debt / Total Capitalization
Form filed when a corporate even happens
Form 8-K
Annual audited financial report
Form 10-K
Quarterly financial report
Form 10-Q
TIC
Tenants in Common
-if person dies, assets flow through to estate
JTWROS
Joint Tenants with Rights of Survivorship
-Assets flow through to other owners of account
A business entity with unlimited liability.
Sole Proprietorship
- An unincorporated associated of 2 or more people
- Income and losses pass through
- Easy to form and easy to dissolve
Partnerships
- Shareholder’s risk limited to investment
- Taxable entity
C Corporations
- Limited liability
- Limited to 100 shareholders
S Corporations
- Limited liability
- Unlimited number of members (rather than shareholders)
LLC
What would someone invest in if they had a financial goal of preservation of capital?
- Bank CDs
- Money market funds
What would someone invest in if they had a financial goal of current income?
- Gov’t, agency, municipals, corp bonds
- preferred stock
- common stock
- bond funds
- equity income funds
What would someone invest in if they had a financial goal of capital appreciation?
- Common stock
- Equity funds for growth
What would someone invest in if they had a financial goal of speculation?
- Specialized funds
- Options
- High-Yield bonds
What would someone invest in if they had a financial goal of diversification?
- Foreign stock funds
- Tangible assets for inflation protection
What would someone invest in if they had a financial goal of passive investing?
-Index funds, ETFs
What would someone invest in if they had a financial goal of College Tuition?
- Zero coupon bonds
- Coverdell ESAs, Section 529 plans
What would someone invest in if they had a financial goal of Retirement Planning?
- Pensions
- Annuities
- IRAs
What tells you what an investment made today at a given rate by worth at some point in the future?
Future Value
What tells you how much needs to be invested today at a given rate to equal a specified value at a point in the future?
Present Value
Approximate formula for doubling of investments
Rule of 72
The discount rate that results in a net present value of zero for a series of future cash flows.
Internal Rate of Return
Difference between an investment’s present value of future revenues and its cost.
Net present value
Used to evaluate the performance of portfolio managers
Time Weighted Returns
Used to evaluate the individual’s account performance
Dollar Weighted Returns
What says that all investors have equal access to the same market information?
Efficient Market Hypothesis
What runs trials based on varying factors that measure probabilities of meeting specific objectives and goals under varying conditions.
Monte Carlo Simulation
A method to value the common stock of a company that is based on the present value of the expected future dividends.
Dividend discount model
A method to value the common stock of a company on the basis of assumed constant growth of dividends in the future.
Dividend growth model
A portfolio diversified by using securities with a low or negative correlation, thereby reducing portfolio volatility.
Modern Portfolio Theory
Two securities prices move in similar direction
Positive Correlation
Prices of two securities move in opposite direction
Negative Correlation
Measures volatility of investment compared with past returns.
Standard deviation
What compares the actual return to the expected return.
Alpha
What measures amount of return per unit of risk taken
Sharpe Ratio
What measures volatility of bond prices by weighting the time the bond interest takes to pay for the bond.
Duration
Risk that overall market will affect individual securities adversely regardless of company’s circumstances.
Market Risk
Risk that a business will fail or perform poorly as a result of specific characteristics of a company or industry in which it operates.
Business Risk
Risk that a change in interest rates will affect a security adversely.
Interest Rate Risk
Risk of erosion of a dollar’s buying power.
Inflation Risk - Purchasing Power Risk
Risk of default
Credit Risk
Vulnerability to adverse change in regulations.
Regulatory Risk
Vulnerability to adverse legislation.
Political RIsk
Speed or ease of converting an investment into cash.
Liquidity Risk
Risk that a government could default on its debt or other obligations.
Sovereign Risk
Rate given up on one investment to invest in another.
Opportunity Cost
What are the key assumptions of the Capital Asset Pricing Model?
- Investors hold diversified portfolios
- Investors can borrow and lend at the risk-free rate.
- There is a perfect capital market
An efficient portfolio is one that offers:
- The most return for a given amount of risk
- The least risk for a given amount of return
A wrap fee account would be most suitable for a customer who:
is a frequent trader
The concept of creating a model portfolio, through asset allocation principles, that both increases return and reduces risk is known as:
portfolio optimization
