Miscellneohs Jmlie Flashcards
What is soft dollar compensation ?
It is received by the adviser from the broker dealer
What is the difference between the offering price of common shares and the par value?
Additional paid in capital
What are loans with no personal liability for repayment known as?
Non-recourse loans
What does the securities exchange act of 1934 regulate?
The secondary market
What is the maximum duration of a warrant?
10 years
What is form ADV?
It’d the form an investment adviser has to file in order to register (SEC and the state)
What does ERISA regulate?
Private sector pension plans
How long does an investor who wants to take action against a firm or representative have to do so?
6 years
What are the three annuity purchase options?
Single payment deferred annuity,
Single payment immediate annuity,
Periodic payment deferred annuity
What does qualified mean in the context of retirement accounts?
Contributions are made with pre-tax dollars
What is a sinking fund?
A fund for the purpose of paying off bond holders
Can investment advisors use discretion in managing their clients account if given verbal consent?
Yes, but they must also receive it in writing within ten days
Can investment advisors charge fees based on capital gains or share in the capital appreciation of their client’s fund?
No!
Sanctions imposed by FINRA are effective within how many days of a written decision?
30 days
What is the difference between tactical asset allocation and strategic asset allocation?
Tactical asset allocation is when you increase your holdings of bonds, and strategic asset allocation is switching to fixed-income shit
Are pension consultants considered investment advisors according to the investment advisers act of 1940?
Absolutely
A federally covered investment adviser who has become ineligible to continue their federal registration has how long to file formnADVW?
90 days
Who is exempt from the definition of an investment adviser according to the investment adviser act of 1940?
Banks, LATE (lawyers, accountants, teachers, engineers), any person who’s advice is only related to government issued securities, broker dealers who receive no compensation for such advice which should be incidental to their business as a broker-dealer
Which of the following plans is non#funded? Deferred compensation plan, TSA, Keogh, TDA?
The deferred compensation plan is unfounded because it is a CONTRACT
Can a state administrator compel a registrant to pay restitutions ?
No, only a court can
Is the maximum penalty under the Uniform Securities Act?
Max penalty is 3 years in jail and or 5,000 dollars
Does a broker dealer have to notify the SEC that it intends to do business in a specific state when registering ?
No
Does FINRA regulate broker-dealers or investment advisers?
Just broker dealers. Advisers (firms) and IARs are regulated by the states and the SEC ONLY
A type of expense and profit sharing arrangement where the LPs absorb all the expenses and the GP does not receive payment until the LPs have recovered their costs is known as
Revisionary Working Interest
What is the quick ratio and how is it different from the current ratio?
It is the same thing as the current ratio expect inventory is subtracted from current assets
Under the USA, the statute of limitations for civil action against a firm by a purchaser of a Security is:
2 years from discovery, 3 years from occurrence
How is an open-ended mutual fund liquidated if the client doesn’t specify ?
the shares will be sold on a FIFO basis!
According to the Scurities and Exchange Act of 1934, when institutional investment managers trade with discretionary authority , they must file with the SEC if holdings in
Equity securities are valued at $100,000,000 or more
Does diversification reduce nonsystematic or systematic risk?
It reduced nonsystematic risk. Systematic risk is basically risk u can’t avoid
If an IAR works for a federally registered investment adviser, where must they register?
They only have to register in the state they work in, even if they have clients in other states
An agent sells a non exempt unregistered security to the account of one customer in a neighboring state. This is an example of
An isolated non issuer transaction, which means it is an exempt transaction
“An isolated non-issuer transaction involves an ad-hoc exchange of securities between two private parties, often on an over-the-counter (OTC) basis, exempting it from registration”
If u are given the market price of the stock and the QUARTERLY dividend, how do u calculate the current yield?
Get the annual dividend, and then divide it by the current market price
What is the Russell 2000 index?
Index that tracks 2000 small and mid-cap companies
What is a wrap account, and what brochure must be given to clients who open wrap accounts?
A wrap account is an account that charges a fee for the advice received as well as the transaction. Clients must receive a brochure called Schedule H
What are soft dollars?
They’re essentially kickbacks that brokerage firms give to investment advisers that are routing client order flow to them. Obviously this isn’t what they want it to be called or acknowledged as being, but that is what it is basically.
“The services received need to be for the benefit of the client”
Are sports and entertainment representatives- that offer advice of investing, tax planning, budgeting, etc- now typically required to register as an investment adviser? What about pension consultants?
Yes and Yes
When does a broker-dealer’s registration become effective?
Either at noon 30 days after the initial application was received or at noon after the administrator has received the last piece of required information
If an agent works for a broker dealer, do they have to be registered? Are there any exceptions
Yes, the only exception is for officers or directors who have no involvement with customers, securities transactions, or supervision.
Does a website have to FINRA logo on it?
No, it can only say something like “Member of FINRA”, and if it does that it must also provide a link to FINRA’s website
What are some key words that indicate it is a security,
“Interest, certificate, option, variable”
“Investment contract” is a security
Fixed contracts/annuities, futures contracts are not securities
SINGLE STOCK FUTURE is the one exception: it is a SECURITY
Where are agents (of a broker-dealer) required to register?
Their home state, state of employment, and state of residence of their customers
Who are not investment advisers?
Banks, savings and loans, LATE, an agent, publishers of newspapers and magazines, anyone else exempt by the administrator (ie, an adviser who gives advice on government securities or presumably any other exempt securities)
What is an institutional investor?
An institutional investor is a person or firm who trades securities for his or her own account or the account of others.
Who is a qualified purchaser?
It’s like an accredited investor on steroids. An individual or family owned business with at least 5 milly in investments, or a trust sponsored by qualified purchasers.
Do broker dealers offering wrap accounts have to register as investment advisers?
Yes (because they are being paid fees for execution of transactions AND advice)
What is a broker who maintains a fair and orderly market for other brokers called?
A specialist
What is a municipal bond scale?
It displays various YTMs for munies of different maturities
When registering securities for sale on the primary market, do you have to provide a consent to service of process? What else?
Yes, amount of securities being offered, all other states where filing has or will be made, “specimen of the security”
In order for a private investment company to charge a performance based fee, what must the client have?
Either a net worth of at least 2 milly or 1 milly under the adviser’s management
Which by-laws govern the resolution of complaints filed with FINRA?
Code of Procedure
Which business entities protect personal assets from personal liability?
LLc, c corp, S corp
How do you calculate risk adjusted return (or excess return)
Beta (market rate - risk-free rate)
What can and cannot an administrator do to a broker-dealer who is in violation of the USA
They can: petition a court to issue an injunction, suspend the broker-dealer’s registration, and issue a cease-and-desist
The USA does not empower the state administrator to levy fines against the broker-dealer
How much can you contribute to an educational IRA?
Up to 2k per year
What is the diffference between the weak, semi-strong, and strong versions of the efficient market hypothesis?
Weak- prices only reflect past information
Semi-strong- all past and current information is priced in (but not necessarily non-public information(
Strong- markets are perfect and constantly price in every single piece of information
Under the Uniform Securities Act, is a person effecting transactions in commodities an agent?
No because they are not dealing in securities, only commodities
Do shareholders vote for a dividend?
No, it’s determined by the board of directors
When does registration of firms and agents expire under the USA?
December 31st
How long does a respondent have to appeal an administrator’s order?
60 days
Do Investment Advisers have to be registered in the states they do business? Are there exemptions?
Yes, but there are state registration exemptions for IAs who are
- federally registered,
- manage portfolios for investment companies
-manage portfolios in excess of $110,000,000
-have no office in the state and conduct business exclusively with financial institutions
-have no office in the state and offer advice to five clients or less in any 12 month period (De Minimis Exemption)
Can an Investment adviser borrow from a customer?
No, unless it’s an immediate family member apparently
Can a state administrator subpoena evidence when investigating a broker-dealer?
Yes
What is the maximum maturity of commercial paper?
270 days
What is the maximum penalty under the Investment Advisers Act of 1940?
5 years in prison and/or a $10,000 fine
For the USA it’s 3 years in prison and/or a 5k fine
What is an investor who sues for violation of the Uniform Securities Act entitled to receive?
The value that they paid minus any income received during the holding period
Interest on their money for the holding period
Court costs
Which 3 persons can civil action be taken against for violation of the USA?
An agent,
A firm,
The agent’s supervisor
What is a 121b fee and what does it include?
It is a annual marketing or distribution fee on a mutual fund, and includes printing and promotional fees
What sort of offers does a state administrator have jurisdiction over?
If the offer originated in the state, was directed in that state, or was ACCEPTED in that state.
Also If it’s a newspaper that is published in the state and has more than 1/3 of its circulation in the state
IF the OFFER was a radio or television broadcast that originated outside of the state, then the state administrator does NOT have jurisdiction
What is the net worth requirement of an institutional investor in order to be required to file form 13F with the SEC?
100 milly
What are stop-limit orders?
If a security reaches the stop price, it becomes a limit order, so it will only execute at the limit price or better.
What are sell-stop and buy-stop orders?
Sell-stop is if u have a security at say 50 and u set a sell-stop at $45. If it hits 45, this triggers a market order to sell the security
A buy stop is same but in the opposite direction. If you have a stock at $50, and you set a buy-stop at $55, and the stock hits $55, this will trigger a market order to buy the security
Where can information be found on corporate bonds?
The yellow sheets
Explain the difference between investment advisers and broker-dealers for verbal authorization (for discretion)
Investment advisers can use discretion if they are given verbal consent so long as the client provided written discretionary authority within 10 business days.
Broker dealers need written permission from the client before entering the first discretionary order
An administrator may revoke the exemption from registration from which type of entity?
Non-profits (ie, a church)
What is a Regulation A offering?
It is a rule that allows Canadian and US issuers to raise up to 75 milly in any 12 month period with an exemption from the standard registration process
What is the difference between qualifying rollovers vs direct transfers?
A qualifying rollover involves moving funds from one account to another type of account (at the same institution), and only one can be performed per year and within 60 days
A direct transfer is used to move funds between a single type of account between two different institutions
What are 3 main differences between mutual funds and variable annuities
Variable annuities are tax-deferred, have no max sales charge (mutual fund has a max of 8.5%), and has lower liquidity than mutual funds
What is the wash-sale rule?
If a person sells a security at a loss and within 30 days purchases a security which is essentially the same, the original cost basis is passed on to the new purchase. Basically it is to prevent investors from harvesting tax deductions on losses
What organization handles trade practice complaints for FINRA?
Department of Enforcement
How are municipal bonds taxed?
Interest is not taxed at the federal level (and typically not the state level). Capital gains however are taxed at the federal state and local levels
How long does a person have to switch a variable life policy to a whole life policy?
24 months
What is a balance fund?
A fund that owns both stocks and bonds
What is the difference between how TSA/TDAs (tax sheltered annuities and tax-deferred accounts, for nonprofit and public organizations) are funded vs how non qualified corporate plans are funded
TSA/TDAs are funded with pre-tax dollars, while non qualified corporate plans are funded with after-tax dollars
What are the two types of qualified corporate plans?
Defined benefit plans and defined contribution plans (401k, profit sharing, thrift plans, stock bonus plan, etc)
What is a fulcrum fee and to whom can it be charged?
It is a performance-based fee is can be charged to investment companies and to large , non-retirement accounts with assets over 1 milly
The Investment Advisers Act of 1940 considers written communication sent to more than how many people to be advertising?
1!
How do you calculate an investors gain or loss from selling shares in a mutual fund?
- Calculate the average cost (total cost/ # of shares)
- Then compare the average cost to the NAV cuz this is the price the investor will be selling the shares at
What is the prime rate?
The rate that banks charge their most creditworthy corporate customers on loans
Is a Keogh plan qualified or non-qualified? What percentage of your self-employed income can you contribute to the plan?
It is a qualified retirement plan (contributions are made with pre-tax dollars)
20%
Under the Securities Exchange Act of 1934, a beneficial owner of more than 5% of a Section 12 security must file a Schedule 13D report within how many days?
10 days! This is the report that you know (Warren Buffett has to do it all the time, it happens in Billions too sometimes)
How to calculate the real rate of return?
Nominal - inflation. If you’re given the tax rate ignore it they’re trying to trick you
Can a firm or registered rep use the FINRA LOGO on its website
No (but the firm can say they are a “FINRA member firm” or “Member of FINRA”)
For how long does an investment adviser need to keep records readily available/accessible?
For 5 years
What is a non-issuer transaction?
It is a transaction of publicly traded securities that is exempt from registration IF the issuer has securities registered under Section 12 of the Securities Exchange Act of 1934 and has been reporting for at least 180 days
OR
the Issuer has securities registered under the Investment Company Act of 1940
OR
the issuer has filed the information required by the securities Exchange Act of 1934 with the administration for at least 180 days prior to the transaction
Services that are provided to IAs in exchange for commission business and are normally research related are called?
Soft dollars
An investor holding an 8% subordinated debenture will receive how much at maturity?
$1040 (principal plus last semi-annul coupon payment )
A firm, acting on its own account as principal, is considered
A dealer
Preferred stocks pay dividends how frequently?
Semi annually, just like bonds
What is a forward stock split?
It’s when a company increases the number of outstanding shares held by current shareholders
What is the difference between an Immediate or Cancel order vs a Fill or Kill order?
An Immediate or Cancel order is one which must Eve executed immediately. It’s okay if only parts of it can be executed
With Fill or Kill, it has to be the entire order that is executed or it is cancelled (“killed”)
What is the purpose of a surety bond under the USA ?
To cover the costs of possible legal actions taken against the party for violation of the USA
What currency are ADRs denominated in? What rights do you have as an ADR holder?
USD. Voting rights, right to convert ADRs to underlying common shares, right to receive dividends
Do stock dividends paid to shareholders constitute an offer to sell a security? What about a gift of an assessable security?
No, and yes, a gift is an offer apparently
What are auction rate bonds?
Bonds with 20-30 year maturities with variable rates (intended to be held long-term)
When is commercial paper given a federally covered exemption?
If the maturity date is less than 270 days and it is sold in denominations of $50,000 or more
Chat room discussions which detail investment services are considered?
Retail communication
Within how many days must a federally registered investment adviser file form ADV 1 with the SEC
90 days
How much does SIPC cover? (Hint, not quite the same as FIDC )
500k total (250k of which can be cash)
A firm acting for the accounts of others as an agency is considered
A broker
How Can you sell an unregistered, non-exempt security ?
Through an exempt TRANSACTION like a private placement
Who can be apart of private placements?
An unlimited number of accredited investors and up to 10 non-accredited investors in a 12 month period
What are US savings bonds formally known as?
Series EE bonds
What is the market cap of a small cap company and a mid-cap company?
Small cap companies have market capitalizations of less than 1 billion, mid caps anywhere between 1 and 5 billion
How do you calculate the YTM of a bond?
(Annual income - ANNUALIZED premium) / (par + premium price)/2
Where annualized premium is the premium/#of years to maturity
What happens if you increase your cash position from a risk standpoint?
Opportunity cost increases apparently (the way I’m going to think about it is if you’re holding more cash, you’re holding less equities, and therefor giving up the opportunity to partake in potential gains in the market 🤷♂️)
Why would a corporation attack a warrant to their bond?
To lower the coupon, to save money, to make the bond more attractive
What does section 404c of ERISA (safe harbor) do?
Provides provisions that can protect fiduciaries from liability if certain requirements are met:
-Minimum of 3 investment portfolios must be available
-participant must be given ample opportunity to move money between portfolios offers
Is a seminar hosted by a registered representative considered retail communication?
Yes
For estate tax purposes, the IRS will include assets transferred within how many years when determining the estate’s tax liability?
Assets transferred within 3 years
What is the S&P 400?
A mid-cap index (high beta companies with more risk)
If an investment company mails an offer to a neighboring state, is the offer considered to have been made in the originating state, the receiving state, or both states?
Both states
What is the maximum fine under FINRA’s Code of Procedure?
Unlimited
The securities act of 1933 is concerned with what 3 things primarily?
PRIMARY market transactions
Disclosure
Non-exempt issuers (sussy boys)
Does choosing time/price give an IAR or agent of a broker-dealer discretionary authorization?
No
What is a not-held order?
It is an order that gives a broker time and price discretion to seek the best price possible
How are T bonds quoted?
As a percentage of par to 32nds of 1%
What is the collection ratio ?
It is concerned with the amount of tax assessed and the amount of tax collected- used to evaluate credit quality of GO bonds
Does a tombstone advertisement constitute an offer to buy that is SOLICITED
No
Can generic advertising contain information about past recommendations?
No
Are CDs FDIC insured? Is there penalty if redemption is made prior to maturity ?
Yes (up to 250k like normal) and yes
Describe the relationship between record date, ex dividend date?
If you purchase the stock ON or after the ex-dividend date, you will not receive the dividend. This makes sense, as “ex-dividend” means “without the dividend”. So if you buys it on the day it’s ex-dividend, you’re not getting the dividend. Period. Full stop.
What can a state administrator require a federally covered adviser in its home state to do?
Pay a fee, file all forms that were filed with the SEC, and file a consent to service of process (basically everything but “register”)
When does interest begin to accrue on a bond?
On the dated date
What are three kinds of debt that don’t have reinvestment risk?
Zero coupon bonds, treasury receipts, and STRIPS
(They all are sold at discount to face value)
Who has to register as an IA ?
Pension consultants, sports and entertainment representatives, publisher of a market letter who charges a subscription
What kind of order is DNR (do not reduce)
It’s when you don’t want your order reduced for ordinary dividends
(Limited) power of attorney vs full power of attorney
Limited power of attorney is the typical one, and allows investment professionals to purchase and sell securities on the behalf of a client (this is discretion).
Full power of attorney allows the investment professionals to withdraw cash and securities from an account
What does duration measure ? What type of bonds have the highest durations?
A bonds price sensitivity with respect to interest rates. Zero coupon bonds have the highest durations (STRIPS, zero coupon bonds, treasury receipts, etc)
Tactical is to ____ as strategic is to _____
Bonds, fixed-income
A Moody’s Investment Grade (MIG) rating is assigned to what kind of municipal debt?
Short-term only (e.g., tax anticipation note)
What is a basis book?
It is a table or book of tables that shows the yields of bonds at different interest rates and maturities
Describe the loads for A,B,C, and D shares in a mutual fund
A shares have a front end load (charge when you buy the share)
B shares have a back end load (when u sell the shares)
C has a charge based on the value of share
D has the double whammy- a level load and a back end load
How many principals must there be (at a minimum) in order to be approved for membership with FINRA?
2!
An IRA can be funded with _____ income but not with _______ income
earned, investment
In order to register through notification, what must the filer have?
____ independent market makers,
At least ___ shareholders,
Public float of at least ___ shares
Bid price of at least ___
4 independent market makers,
At least 500 shareholders
Public float of at least 400,000 shares
Bid price of at least $5
Of a new client, Which matters the least to an IAR ?
The clients education and occupation,
The client’s other holdings,
The needs of a disabled dependent
The clients age
The clients education and occupation
How is the intrinsic value of an option calculated? What is the intrinsic value of an option when the call options strike price is $15 and the stock’s market price is $25
It is the difference between the price of the stock and the strike price. In this example it would be $10 ($25 - $15)
Is a secondary market transaction, such as an 100-share trade executed on the NYSE, referred to as a NON-ISSUER transaction under the Uniform Securities Act?
Yes, it is considered a non-issuer transaction
What is the odd-lot theory?
Basically it’s a technical analysis strategy that believes small investors are idiots so take the opposite of their trades
If you meet the SEC’s net capital requirement as a broker-dealer do you need to meet the surety bond requirement?
No
In general, the term “agent” does not apply to persons who _________
Represent issuers in exempt transactions
The dividends on an ADR are paid in ____ currency and received by investors in ____
Foreign, US dollars
What is a straddle as an options strategy ?
It’s when you go long both a call and a put or short both a call and a put (basically betting on volatility)
How many days does an investor have to accept an offer of rescission?
30 days
What 4 things must an investment advisory client be informed of?
- If a partner leaves the firm
- The amount of commission earned on agency cross transactions
- The amount of agency cross transactions executed in a given year
- Regulatory action against the IA within the last 10 years
What is the maximum fine for violators under the Insider Trading Fraud Enforcement Act?
Unlimited !!!
When can advisers registered with 2 different firms split a commission of a transactions
With permission of both firms, and if both agents are registered in the customer’s state
The respondent to an arbitration has how long to respond to the claimant?
An investor who wants to take action against a firm or representative has how long to bring the case to arbitration?
The statute of limitations for taking action against a firm at the STATE level is:
A respondent who is unhappy with the order of the administrator may appeal it to the court system within____
45 days
6 years
2 years from discovery, 3 years from the triggering event
60 days
Chat room discussions which detail investment services are considered ____
Retail communication
If the customer names the stock to be purchased and the number of shares, the broker does not need _____
Discretionary authorization
Rising inflation will tend to ___ impact the bond market, and _____ impact the stock market
Negatively, negatively
What is the minimum dollar amount required for a negotiable CD?
$100,000
Corporations get to choose who participates for _____ retirement plans
Non- qualified
What is a Keogh plan, and what is a key requirement of it
A Keogh plan is a retirement plan for self employed people (not corporations). A key requirement is that if the business has eligible employees, the employer must make a contribution for the employees at the same rate as their own contribution
The capital market consist of ____ financial vehicles
Long term
What are Eurodollar bonds?
They are bonds sold by a US company, denominated in DOLLARS to investors outside of the US (outside of SEC jurisdiction).
We know that a variable annuity invests indirectly in the stock market. The separate account has to register as what kind of company?
A Unit Investment Trust (or open-end fund I think)
Can a 401k be rolled over easily (recall a rollover allows the participant to take possession of the money)? Are employees 100% vested in all contributions immediately?
No, and no (a plan participant only becomes vested immediately in their own contributions)
Are hedge funds required to provide a prospectus to investors?
No, since investing in hedge funds are not available to the public
How much does SIPC cover per account?
500k, with a limit of 250k for cash
According to FINRA, a password protected website is considered ____ . Non password protected websites are ______ and customized communications are _______
Sales literature (retail communication)
Advertising
Correspondence
Random withdrawals from a variable annuity will always be done on a ____ basis. For mutual funds if someone withdraws and doesn’t specify how, it’s done ___
LIFO, FIFO
Long options are associated with an increase in what kind of risk?
Capital risk
How do you calculate the value of a right prior to the expiration of the rights offering (cum-rights) ?
(Market price - subscription price) / (#of rights to subscribe to one new share + 1)
What is the doctrine of reciprocal immunity?
The federal government won’t tax interest earned on munis and the state governments won’t tax interest earned on federal securities
Can warrants be purchased on preferred stock and/or common stock?
No, not on preferred stock (only on common)
An ____ transaction is an example of an exempt transaction
Unsolicited
Broker dealer advertising needs to be kept for ____ years and readily available for ______ years.
3, 2
Transactions with Fiduciaries, underwriters, unsolicited orders, and mortgage-backed securities all have what in common?
These transactions are exempt from registration with the administrator
What is a SALE under the USA
Any contract to dispose of a security for value
How often must a participant in a corporate pension plan get reports?
At least annually
Who benefits the most from a defined benefit plan?
Employees with high salaries and the fewest years to retirement. A defined benefit plan provides a stated benefit such as a set percentage of the employee’s income
Which type of life insurance policy invests the money in the general account, HAS NO SCHEDULED premium payments and has a face amount which can be adjusted according to the policyholder’s needs?
Universal Life Insurance
How often must an investment advisor with custody of client funds send account statements?
At least quarterly
What kind of bond ensures against employee dishonesty? (Hint: it’s not a surety bond)
Fidelity bond
What are the main 3 points of the National Securities Market Improvement Act of 1996?
- required federally registered advisers to notify the state in which they do business and pay a state filing fee
- minimize dual registration at state and federal level
- requires that investment advisers with AUM of 110 milly or more register with the SEC, and then are known as federally registered advisers
If the client does not given written discretionary approval, a broker can only decide the ____ and _____ involved in the transaction
Time and price (time and price, even both, does not constitute discretion)
What is the AMT (alternative minimum tax)? What are tax preference items?
It’s basically for rich people who can deduct a ton of shit from their income. It requires them to recalculate their tax liability under AMT, and pay whatever is higher.
Tax preference items are basically deductions they took originally on their taxes, but for the purposes of calculating tax liability under AMT, need to add back
Can include:
- interest on municipal revenue bonds (not GOs)
- depreciation in excess of straight-line depreciation
- intangible drilling costs
What is the purpose of Ginnie Mae?
To provide liquidity to the mortgage market by buying up mortgages and then offering investors an agency issue
What is an investor’s time horizon?
It’s the amount of time they have until they need to liquidate or access the investments in an investment account
