Questions Flashcards
0
Q
What is the tax rate for dividends?
A
15%
1
Q
How many days must a new employee of MSRB wait before dealing with public?
A
90
2
Q
What is the formula for current yield?
A
Current yield = annual income / current market price
3
Q
Parity price
A
shares that can be received upon conversion par / conversion rate the parity is current market value of convertible / # shares
4
Q
Minimum dollar amount for Ginnae Mae pass-through.
A
$1,000
5
Q
Interest earned on Fannie Mae owes taxes where?
A
Federal, state, local
6
Q
Calculate tax equivalent yield.
A
Muni rate / (1-tax bracket)
7
Q
To whom must you report trades between MSRB members?
A
NSCC
8
Q
What is the dollar amount of a round lot in muni bonds?
A
$100,000
9
Q
Who is insures against the issuers default or credit risk of the issuer?
A
AMBAC and MBIA
10
Q
What is an out firm quote?
A
An out form quote means that the dealer quoting the prices is obligated to trade with another party at that price.
11
Q
Are capital gains on OID muni bonds considered ordinary income?
A
Yes
12
Q
Must an investor who purchases a muni bond at a premium amortize the premium over the remaining years?
A
Yes
13
Q
Will a syndicate member filling a customer order receive the total takedown?
A
Yes
14
Q
How are most revenue bonds awarded to syndicates?
A
Through negotiation
15
Q
Formula for tax equivalent yield.
A
Tax exempt yield / (1 - the tax bracket)
16
Q
What is the maximum duration for a piece of commercial paper?
A
Nine months or 270 days
17
Q
Who controls the discount rate?
A
The Federal Reserve Board
18
Q
At what rate do banks repay each other?
A
The fed funds rate.
19
Q
How many days for delivery when a stock option is exercised?
A
Three days.
20
Q
What triggers the automatic exercise of capped index options?
A
If they go 3o points in the money.
21
Q
How many days for options settlement?
A
The next day
22
Q
How many days does a customer have to return a signed options agreement after the account has been approved?
A
15 days
23
Q
For how many days may a letter of intent be backdated?
A
90
24
May an investment club qualify for breakpoint sales charge reductions?
No
25
How many shareholders must an investment company have to start and continue?
100
26
How often may a mutual fund send out capital gains distributions?
One per year
27
What is the max investment of its assets in any one company for a diversified mutual fund?
5%
28
Pricing formula for an open end investment company?
NAV + SC = POP
29
How much net investment income must a mutual fund distribution to retain tax advantages?
90%
30
Who sets the ex-dividend date for an open ended mutual fund?
The board of directors.
31
How often must mutual fund prospectus be updated?
Every 13 months
32
What type of risk is carried by the owner of a fixed annuity?
Purchasing power risk
33
What is a free shoe provision?
A green shoe provision allows the syndicate to purchase up to an additional 15% of the offering from the issuer.
34
How many non-accredited investors are allowed in a corporate bond offering?
35 in any 12 month period
35
What is a standby underwriting agreement?
The underwriter will standby to purchase any shares not purchased by shareholders.
36
How many bids may be entered to the benefit of the syndicate?
1
37
For how long after the IPO must the prospectus be presented?
90 days
38
Does a selling group member have liability to the syndicate is issues remain unsold?
No
39
On a ticker tape, what does s/s stand for?
S/s indicates a round lot is 10 shares.
40
May a representative ever borrow from a client?
Yes, if the client is in the business of making loans. (Bank, credit union)
41
May any relatives purchase "hit issues"?
Yes, in-laws provided strict limits.
42
Does a new account form require the signature of the customer?
No. Before opening a new account for a new customer, a registered rep fills Ajit and signs the form, not the customer.
43
Who sets the minim margin maintenance for a new margin account?
NYSE / FINRA
44
What is the initial minimum for a new margin account?
$2,000 or 50% of the purchase price.
45
How do you calculate the minimum equity in a long account?
Multiply the market value by .25
46
How much margin is required for a muni bond?
The greater of 7% of par value or 15% of market value.
47
What is the penalty for an excess Keogh contribution?
10%
48
How often and what is the transfer window for Ira rollovers?
Once per year and 60 days.
49
Is IRS approval required for participation in qualified and non-qualified plans?
Yes for qualified, no for non-qualified.
50
What does signing a stock or bond power do?
Allows for the transfer of shares.
51
How many days prior to an annual meeting must proxies be returned?
10
52
How many days smoke settlement of treasuries?
Next day
53
Who may guarantee signatures?
Bank officers and principals of exchange member firms.
54
Formula for current yield.
Annual div / market share
55
Composition of capitalization.
Assets, liabilities, net worth, stockholders equity.
56
Describe overriding royalty interest.
Has no partnership risks but received a royalty from the partnership.
57
May a limited partner advise the general partner?
No
58
What is the greatest risk associated with purchasing a CMO?
Early refinancing or prepayment risk
59
What does the Securities Act of 1934 regulate?
The secondary market
60
What does the Uniform Practice regulate?
The way members conduct business with other members.
61
What is the Maloney Act?
An amendment to the Securities Act of 1934 established NASD (now part of FINRA) as the self regularly organization of the OTC market.
62
For how long must brokers maintain ads?
3 years
63
Requirements for accredited investor
One or more of:
Net worth of 1m ex house
Single w/income of 200k
Income of 300k jointly w/spouse
64
Accretion
An accounting method used to step up an investors cost badges for a bond purchases at a discount
65
Acid test ratio
Subtract inventory from current assets and divide the result by current liabilities
66
As valorem tax
A tax based on the value of the subject property.
67
Formula: AGI
Earned income + investment income (portfolio income) + capital gains + net passive income
68
Affiliate
An individual who owns 10% or more of the companies voting stock
69
Agency issue
A debt security issues by any authorized entity of the U.S. government.
70
Allied member
An owner-director or 5% owner of a NYSE firm. Callie's members may not trade on the floor.
71
AMBAC INDEMNITY CKRPORATION
Insures the interest and principal payments of muni bonds.
72
Assumed interest rate (air)
Benchmark used to determine the min rate of return that must be realized by a variable annuitys separate account during the layout stage to keep the annuitants payments consistent.
73
Automated transaction comparison (act) service
ACT is the service clears and locks NASDAQ TRADES
74
Balance sheet equation
Liabilities + shareholders equity
75
Bankers acceptance note
A letter of credit that facilitates foreign trade.
76
Blind pool
A type of direct participation program where less than 75% of the assets to be acquired have been identified
77
Block trade
10,000 shares or $200k mc
78
Blue list
Daily pub of muni offerings and secondary market interest.
79
Blue sky
State registration process for a security offering
80
Blue sky laws
State based laws enacted under the Uniform Securities Act.
81
Number of members on board of governors.
27
82
Bond anticipation note
Short term municipal financing sold in anticipation of long term financing.
83
Bond ratio
How much of the capitalization is from bonds
84
Bond swap
The same and purchase of two different bonds to claim a loss and avoid violating wash same rules.
85
How much do firms pay into SIPC and what is the coverage?
All member firms pay dues to SIPC based upon their revenue. SIPC provides coverage for each separate customer for up to $500,000, of which $250,000 may be in cash.
The Securities Protection Act of 1970 created SIPC.
86
Breakpoint Sale
The practice of selling mutual fund shares in dollar amounts that are just below the amount where the investor is entitled to a sales charge reduction.
87
Buyers option
A settlement option that allows the butler to determine when the transaction will settle.
88
Buy in
An order executed I the event of a customers failure to deliver the securities it sold.
89
Capitalization
The composition of a company's financial structure. It is the sum of paid In capital + paid in surplus + long term debt + retained earnings.
90
Capital stock
The sum of the par value of the company outstanding common and preferred stock.
91
Capital surplus
The amount of money received in excess of par at the IPO
92
Capped index option
An index option that trades like a spread and is automatically exercised if it goes 30 points in the money.
93
Carried interest
A sharing arrangement for a oil and gas direct participation program where the general partner shares in the tangible drilling costs with the limited partners.
94
Cash account
Investor has 5 days to deposit funds and is not required to sign anything when opening.
95
Cash assets ratio
Cash and equivalents / current liabilities
96
Cash flow
Net income plus depreciation
97
Cash management bill
Short term federal financing issued in minimum denominations of 10 million
98
Certificates of accrual on Treasury securities
Zero coupon bonds issued by brokerage firms and collateralized by Treasury securities.
99
Class A share
A mutual fund share that charges a front end load
100
Class b share
A mutual fund share that charges a back end load
101
Class c share
A mutual fund share that charges a level load
102
Class d share
A mutual fund share that charges a lev load and a back-end load
103
Classical economics
The economy will do best when the government does not interfere.
104
Code of ProcedureTHE FINRA
The FINRA bylaw that sets the guidelines for the investigation of trade practice complaints and alleged rule violations.
105
Collection ratio
A measure of a municipalities ability to collect taxes it has assessed.
106
Combination preferred stock
A preferred share with multiple features such a cumulative and participating
107
Combined account
A margin account that contains both Ming and short positions.
108
Commercial paper
Does not pay interest
Issues at discount
Matures at 270 days or less for face value
109
Common stock ratio
Par value of common stock + excess paid in capital + retained earnings / total capitalization
110
Concession
The amount of the underwriting discount that is allocate to the syndicate member or a selling group
111
Conduit theory
The IRS classification that allows a regulated investment company to avoid paying taxes on investment income it distributes
112
Contemporaneous trader
Enters an order on the other side of the market at the same time as a time as someone with inside info. They can sue the trader with inside info
113
Control person
A director or officer of a issuer or broker dealer or a 10% stakeholder of a corporation.
114
Control stock
A stock that is acquire or owned by a officer, director, or person owning 10%
115
Length of cooling off period
At east 20 days
116
Coordination
Securities registration at state and federal level at same time
117
Coterminous
Municipalities that share the same borders as have overlapping debt.
118
Crossover point
The point at which all tax credits have been used up by a limited partnership resulting in a tax liability for the partners.
119
Cumulative preferred stock
A preferred stock that entitles the holder to receive unpaid dividends prior to common shareholders. Divs that accumulate in arrears are first to be paid.
120
Cumulative voting
Cast all votes for one director or distribute
| Favors smaller investors.
121
Current yield
Annual income / current market price.
122
Customer protection rule
Rule 15c3-3 requires customer assets to be segregated from firm assets.
123
Dated date
The day when interest starts to accrue for bonds
124
Deer paper
Commercial paper sold to public by dealer, rather than be placed with investors directly by the issuer.
125
Debenture
An unsecured promissory note issued by a corporation backed only by their word.
126
Debt to equityLT
LT debt / shareholders equity
127
Defeasance
Results in the elimination of the issuers debt obligation by issuing new debt to pay off the old issue.
128
Disintermediation
The flow of money from traditional bank accounts to alternative higher yielding investments.
129
Disproportional allocation
A method used by FINRA to determine if a free riding violation has occurred with respect to a hot issuer. Bad form is only allowed to sell up to 10% of a new issue to conditionally approved purchasers.
130
Disproportionate sharing
An oil and gas sharing arrangement where the general partner past a portion of the cost but receives a larger portion of the revenues.
131
75-5-10 rule
A diversified fund must have 75% in assets issued by others, no more than 5% in any one and no more than 10% ownership of a single issue
132
Dividend payout ratio
Dividends / EPS
133
Dividend yield
Annual dividends / current market price
134
Doctrine of mutual reciprocity
Agreement of fed govt to not tax muni bonds and vice versa
135
Dollar bonds
Minus quoted as a percentage of par rather than yield
136
Eastern account
Syndicate where all members are responsible for their allocations as well as their proportional share of unsold by others in syndicate.
137
EE savings bonds
No marketable zeros they must be purchased from and redeemed by the govt
138
ERISA
Legislation in 1974 governs private sector pension plans.
139
Exchange distribution
Large block of stock off the floor is crossed
140
Exchange privilege
Transfer money between funds w/out sales charge
141
Existing property program
Real estate direct participation program that purchase existing property for the rental income.
142
Face amount certificate company (fax)
Investor makes fixed payments over time or deposits limo sum for return of stated, or face, sum
143
federal reserve bank
12 central banks
| 24 regional
144
Fidelity bond
A bond posted by the broker dealer to ensure the public against employee dishonesty.
145
5% markup
FINRA Recommends this cap but not a rule.
146
10-k
Annual report
147
10-q
Quarterly report
148
Form letter
To more than 25
People in a 90'day period
Subject to approval and record keeping requirements
149
403b
401k for teachers and nonprofits
150
Fourth market
Deal between two large institutions w/out brokers.
151
General obligation bond
Muni bond backed by taxing power of the state or municipality
152
Greenshoe option
An option given the underwriter of cs to lurches up to 15% at original offering price.
153
HH BOND
No marketable security lays semi annual. $500 min denom. May only be purchased by trading in EEs and not with cash
154
Hypothecation
The customers pledge of securities as collateral for a margin loaned
155
Income bond
Highly speculative
Issued at discount
Only pays if issuer has enough income to do so
Trade flat w/out accrued interest
156
Income program
Oil and gas program purchase wells to receive income from sale of proven reserves.
157
Insider trading penalty
Greater of 300% or 1mil and up to 5 yrs in prison.
158
Intangible drilling costs (IDC)
Costs for an oil and gas program that are expenses in the year I which they are incurred for wages, surveys and well casings.
159
Interlocking directorates
Corp boards that share a directors
160
Inter positioning
The placing of another broker dealer in between the customer and the best market. This is prohibited unless it can be demonstrated that the customer receives a better price because of it.
161
Investment advisors act of 1940
Fed guidelines for investment advisors.
162
Joint tenets in common
Assets of deceased transfer to decedents estate not partner
163
Joint tenants with survivorship
Deceased assets transfer to survivor, not decedents family.
164
Keogh plan
For self employed
| Limited to lesser of 20%!of gross or 51k
165
Keynesian economics
Governments should intervene on markets
166
Rule 405
Know your customer
167
LEAPS
Long term option that has an expiration of up 39 months.
168
Limited principal
Passed series 26; may supervise Series 6 reps
169
Limited representative
Passed Series 6 and May sell mutual funds and variable accounts.
170
M1
Most liquid
| Currency, demand, NOW (checking)
171
M2
M1 + time deposits, savings accounts, no institutional money markets
172
M3
M2 + large time deposits, institutional money markets, short term repos, large liquid assets
173
Maloney Act of 1938
An amendment to the Securities Exchange Act of 1934 that gave NASD, now FINRA, the authority to regulate the OTC market.
174
Mini maxi underwriting
Best efforts underwriting that states the offering will not become effective until a minimum amount is sold and sets a maximum that may be sold
175
Minimum death benefit
The minimum guaranteed death benefit paid to the beneficiaries of the holder of a variate life insurance policy dies
176
Modified accelerated cost recovery system (macrs)
An accounting method that allows the owner to recover larger portion of the assets value in the early years of its life.
177
Moral obligation bond
A muni revenue bond that will allow the state or muni to vote to cover a shirt fall
178
MBIA
Municipal Bond Investors Assirance Corp is a independent insurance company that will, for a fee received from the issuer, insure the interest and principal payments on a muni bond
179
Maloney Act of 1938
Authorized NASD which is part of FINRA
180
The 4 major bylaws of NASD
Rules of fair practice
Uniform Practice Code
Code of Procedure
Code of Arbitration
181
NAV
The net value of mutual funds after deducting liabilities
182
Negotiable CD
Issued by bank for time deposit in excess of 100k
| FDIC only covers the first 250k of principal
183
NOW
Negotiable order of withdrawal
| Allows users to write checks agains an interest bearing account
184
Net revenue pledge
A pledge from a revenue bond that lays maintenance and operation expenses first, then debt service.
185
New Housing Authority
A muni bond to build new low-income housing. NHA bonds are guaranteed by the USA govt and are considered the safest type of muni bonds. They are not considered to be double barreled.
186
Nominal owner
Individual or entity registered as the owner of record of securities for the benefit of another party
187
Non competitive bid
Purchaser agrees to accept the average yield of all yields accepted. They're always the flrst orders filled.
188
Odd lot differential
An additional fee charged for handling odd lots.
189
Open end covenant
Bond indenture that allows the issuance of more bonds v same collateral.
190
Original issue discount
Issued at a discount to par
OID corporates is taxed
OID muni is not taxes
191
Overriding royalty interest
A type of sharing arrangement that offers an individual with no risk a portion of the revenue in exchange for something of value such as the right to drill on the owners land.
192
Phantom income
Taxable appreciation of zeros
| Taxable income generated by a limited partnership that is not producing positive cash flow
193
Preemptive right
The right of a common shareholder to maintain proportional ownership interest.
194
Preferred stock ratio
Total par value of preferred stock / total capitalization
195
Project note
A muni bond issues as an interim financing in anticipation of the issuance of new housing authority bonds.
196
Quick assets
Current assets - unsold inventory.
197
Rate covenant
A promise in the trust indenture of a muni to keep the user fees high enough to support the debt service.
198
Re allowance
Sales concession available to dealers who sell securities subject to an offering who are not syndicate or selling group members
199
Recapture
An event that causes a tax liability on a previously taken deduction, such as selling an Asser above its depreciated cost base.
200
Reclamation
The right of a seller to demand or claim any loss form the buying party Dille to the buyers failure to settle the transactions
201
Registered as to principal only
A type of bond registration that requires the investor to clip coupons to receive the bonds interest payments. The issuer will automatically send principal at maturity.
202
Registered options principal
Passed series 4
203
Regular way settle days for corporates, munis, govt securities
Corps and minis are three days; govs are next day.
204
Regulated investment companies must distribute how much of their net income?
90%
205
Regulation A
A small company offering that allows company to raise up to $5mil in any 12 month period without filing full registration.
206
Regulation D
A private placement or sale that I allows for an exemption from registration indeed the securities act of 1933. Na private placement may be sold to an unlimited number of accredited investors but only 35 min accredited in 12 months.
207
Regulation G
Regulates the extension of credit for securities purchases by other commercial lenders.
208
Regulation T
The extension of credit by broker dealers for securities purchases.
209
Regulation U
The extension of credit by banks for security purchases.
210
Regulation x
The extension of credit by overseas lenders for securities purchases.
211
Rehypothecation
The act of a broker dealer pledging a customers securities as collateral at a bank to obtain a loan for a customer.
212
Restricted account
A long margin account that had less than 50% equity but more than 25%
A customer account that has been subject to a sellout.
213
ROE
After tax income / stockholders equity
214
Reversionary working interest
A revenue sharing arrangement where the general partner shares none of the cost and received one of the revenue until the limited partners have received their payback, plus any redetermine amount of return.
215
Rights of accumulation
A right offered to mutual fund investors that allows them to chula re all past contributions and growth to reach a breakpoint to receive a sea charge discount on future purchases.
216
Rule 144
SECS rule that regulate the sale of restricted control securities requiring the seller to file form 144 at the time the order is entered to sell.
Regulates the amount of securities that may be sold.
217
Rule 145
SEC rule that requires a corporation to provide stockholders with a full disclosure relating to reorgs and to solicit proxies.
218
Rule 147
An intrastate offering that provides an exemption from SECS regulation
219
Rule 405
The NYSE rule that requires that all customer recommendations must be suitable and rep must "know" the customer.
220
Sea literature
Market letters, research reports, and form letters sent to more than 25 customers.
221
Schedule 13d
A form that must be filed with the SEC by an individual or group of individuals acquiring 5% or more of a corporations non exempt equity securities. Must be filed within 10'days of the acquisition.
222
Secondary distribution
A distribution of a large amount of securities by a large sharehder or group of shareholders.
223
Secondary offering
An underwriting of a large block of stock being sold by a large shareholder.
224
Securities Act of 1933
1st major piece of securities legislation. It relates the primary market and requires that no exempt issuers file an registration statement with the SEC. The act also requires that Investors in new issues be given a prospectus.
225
Securities Act Amendments of 1975
Created the Municipal Securities Rule-making Board (MSRB)
226
SIPC
All members must pay in based on their revenue.
Provides coverage for each separate customer up to 500k / 250k in cash.
The securities investor protection act of 1@70 created SIPC.
227
Selling away
Recommending of an investment not offered by your firm without their consent.
228
Serial bonds
A bond issue that has an increasing amount of principal maturing in successive years.
229
Series EE bond
No marketable Zero issues at discount. Purchases and redeemed w/ govt
230
Series HH bond
No marketable
Only purchased with maturing EE bonds
$500 min denom
231
75-5-10 diversification
75 % in other issuers
No more than 5 in any one
May not own more than 10% of any one outstanding.
232
Shelf offering
Allows issuer to sell the offering over 2 years
233
Simplified arbitration
Resolve disputes over 50k or less
| No hearing
234
SEP
Qualified investment plan for small employers with25 or fewer employees.
235
Sinking fund
An account established by issuer of debt to place money for the exclusive purpose of paying bond principal.
236
Split offering
A portion of proceeds goes to issuer and a portion goes to selling shareholders.
237
Statutory voting
Requires investors to cast their votes evenly for the directors they wish to invest.
238
Stripper well
An oil well I'm operation to recover the very limited supply left
239
Subchapter s corporation
Allows the tax consequences to flow through to the owners.
240
Takedown
The price at which a syndicate purchases a new issue of securities from the issuer.
241
Tax preference item
An item that received preferential tax treatment and must be added back into income when calculating on investors alternative minimum tax
242
Tax sheltered annuity
Qualified pan for employees of govt, schools and nonprofits..
243
Term bond
Entire principal due on one date
244
Term maturity
Bond maturity that has all principal due on one date.
245
Third market
Exchange listed securities on the Nasdaq workstations
246
Top heavy rule
The rule that states maximum salary for which a Keogh contribution may be based
247
Treasury receipt
Zero coupon bond created by a brokerage firm that is backed by is give securities. Issued at discount matures at par
248
Treasury stock
Stock issued and repurchased by corp
| Does not vote or receive divs or count towards eps.
249
True interest cost
The cost of s municipal issuers interest expense that includes the time value of money
250
Trust indenture act of 1940
Regulates the issuance of corporate debt in excess of 5mil and term of more than one year.
251
12b-1 fee
An asset based distribution fee that is accessed annually and paid out quarterly to cover advertising and distribution costs.
252
Uniform securities act
The framework for state/based securities legislation.
253
UTMA
Allows custodian to determine the age at which the assets become the property of the minor. The max age to transfer ownership is 25
254
Western account
A type of security syndicate account where only the member with unsold shares is responsive for the shares.
255
What is the safest type of muni bonds and why?
New housing authority (NHA) and public housing authority (PHA) payments are guaranteed by the federal government.
256
Price paid for open end fund?
NAV + SC =POP (Public Offering Price)
257
Three requirements for investment company registering with SEC
Net worth of 100k
At least 100 shareholders
Clearly defined investment objectives
258
Formula for stock parity price.
Determine number of shares to be received:
Par value / conversion price
Then cost share at parity price
Current market value of convertible bond / number of share to be received.
259
Trust Indenture a act of 1939
Corporate bond issues > 5 mil that are to be repaid during a term in excess of one year, use a trust indenture.
260
What is a Z Tranche.
The final, and most volatile, tranche of a CMO tranche.
261
Principle only CMO
Receive both the scheduled principle payments as well as any prepayments made by the home owners to the pool.
262
Planned amortization class CMO (PAC)
Paid off first and offer the most protection against prepayment and extension risk.
If presume to come too quickly those principal payments will be placed in another CMO known as support class.
If prepayments are too slow, funds come from support class.
263
Targeted Amortization. Class (TAC)
Only offers protection from prepayment risk. If prepayments come too fast they go to support class however if too slow the investor is subject to extension risk.
264
Another name for default risk.
Credit risk.
265
Treasury Receipts
Similar to Treasury STRIPS, except dealers and banks create them.
266
Coterminous debt
Muni debt issued by different municipal authorities that draw revenue from the same base of taxpayers
267
Revenue bonds: indentures
```
Exempt from The Trust Indenture Act of1939 and must have an indenture with:
Rate covenant
Maintenance covenant
Additional bond test
Catastrophe clause
Call or put features
Flow of funds
Outside audit
Insurance covenant
Sinking fund
```
268
Industrial development/ industrial revenue bonds.
A muni bond issues for the benefit of a private corporation.
269
Double barreled bonds
Issued to build or maintain a revenue producing facility such as a bridge or roadway.
Generally supported by revenues generated but if they fall short general tax revenues are used.
270
Short term notes a state or city may issue (4)
Tax anticipation
Revenue anticipation
Bond anticipation
Tax and revenue anticipation
271
How are general obligation bonds generally awarded?
Through competitive bidding
272
Eastern vs western syndicate
In eastern account, unsold is responsibility of all in syndicate.
Western: only the syndicate member who fell short is responsible for balance.
273
Syndicate members must determine three things:
The underwriters spread
The re offering yield
The prices and yields to be submitted to the issuer.
274
The total takedown
What syndicate members can earn on sales of the bonds to their customers. The total takedown consist of the additional takedown and the selling concession.
275
Selling concession
May be earned on sales of bonds made by dealers who are not syndicate members.
276
days syndicate manger has to return good faith deposits once the manager had settled with the issuer
2
277
Days the syndicate manager has to distribute profits.
60
278
What type of legal opinion is most desirable for investors and why?
Unqualified legal opinion means the bid counsel has no reservations
279
When executing a muni bond trade for a customer on an agency basis consider these five things towards fair and reasonable commission:
```
The availability of the security
The expense of execution
The value of the security
The services offered by the member
Other fees or consideration received
```
280
When executing a customer order on a principal bassist, consider there four things:
The dealers opinion in asset value
The expense of execution
The total dollar amount involved
The fact the dealer is entitled to a profit.
The amount of the markup does not have to be shown On the confirm.
281
REVDEX 25
A yield based index that tracks the health of the revenue bond market.
282
Millage rate
One mill =!1/10 of 1%
283
Revenue bond
| Net revenue pledge flow of funds
```
Operations and maintenance
Debt service
Maintenance reserve account
Renewal and replacement fund
Surplus account
```
Net revenue edge is preferable to investor as it assures maintenance of asset
284
Revenue bond
| Gross revenue pledge flow of funds
Debt service account
Operation and maintenance
Renewal and replacement fund
Surisvaccount
285
What are LGIP's
Local government investment pools allow state and local governments to manage their cash reserves and receive money market rates on funds.
286
What is MSRB?
Municipal securities rulemaking board was established by the securities acts amendment of 1975.
SRO for municipal securities dealers
Has no enforcement functions and just writer rules and test questions.
287
For how long must municipal securities dealers preserve record and complaints?
Records for three with two years readily accessible.
Customer complaints on file for six years.
288
Gift and gratuities limits for securities deletes.
$100 per person per year.
289
Political contributions and municipal securities dealers.
Dealer may not induct muni business with issuer for 2 yrs after contributing $250
290
Negotiable CD: maturity range and min denom
30 days to 10 years 100k min
291
Definition of a depression.
Decline in GDP lasting 18 months or six quarters.
292
M1, M2, M3
M1: cash and demand deposits
M2: M1 + money mkt instruments, time deposits < 100k, negotiable CDs > 100k, overnight repos
M3: M2 + Time deposit > 100k and repos maturing in more than one day.
293
Disintermediation
When people take money from low yielding accounts to fund high yielding accounts.
294
Keynesian view on economy
Duty of government to be involved with controlling gore ruin of economy.
295
Straddle
But call and put same strike and expiry
296
Dollar value of price based options on on T-Bills
$1,000,000
297
Importer / exporter and FX. Who buys calls on foreign currency?
Importer buys calls on foreign.
298
Tow dollar broker
Executed orders for commission house borders when they are too busy.
299
Maximum positions in options.
250,000
300
Options adjustments
Options are not adjusted for cash dividends but are adjusted for stock dividends.
301
Open end vs closed end funds
Closed are like stock and trade in the secondary market. Open are only purchased from issuer.
302
Government bums fund and taxes
Dividends based on interest payments from direct treasury obligations are only subject to federal taxation.
303
Calculation of a mutual fund NAV
Assets - liabilities = NAV
304
Maximum sea charge on open ended mutual fund
8.5% of POP (public offering price)
305
Formula for sales charge
SC% = (POP - NAV) / POP
306
45 day free look
within 45 days of receiving notice of sales charge, investor may return Terminate and receive current NAV and sales charge.
307
Mutual funds: front end load vs spread load
Both maxed at 9% over life of plan
Max charge in 1st ur
50% front load; 20% spread
Max sales charge first 18 mod
None on front load; max avg 16% yr on spread
Termination in forts 18 months
Both return NAV and front end also returns sales charges exceeding 15% of total payments.
308
Investment risk to purchaser of a fixed annuity.
None as a fixed annuity is considers an insurance product not a security.
309
Investment risk of variable annuity
Annuitant bears investment risk and the contract is considered both a security and an insurance product.
Reps selling them must have securities and insurance license.
310
Variable annuity: premium enhancement
Insurance company's match a portion of your contribution
311
Equity index annuity
Provides additional interest based on the return of an index.
312
Prospectus delivery requirements
IPO: 90 days post for OTCBB / Pink
25 days Nasdaq
Additional offering: 40 days OTCBB/pinks
No requirement for Nasdaq
313
FINRA rule 5130
requires broker dealer obtain an eligibility statement from all account owners who purchase a new issue within 12 months prior to the purchase.
Cannot hold shares for most but can offer hot issues with conditions to officers and employees of financial institutions, no supported family members, accountants, attorneys. Finders.
314
Greenshoe provision
When demand is high, green shoe allows the offering to increase by up to 15%
315
Mini-maxi underwriting
Best efforts underwriting that does not become effective until a minimum amount of securities have been sold.
If minimum amount is not sold, the offering will be cancelled.
316
Selling concession
Paid to any syndicate member or selling group who sells shares. It's the only fee the selling group members may earn
317
Underwriting spread
The total amount of the management fee, the underwriting fee, and the Delong concession.
This is the difference between the gross proceeds of the offering and the net proceeds tithe issuer.
318
Transactions exempt from securities act of 1933
```
Private placements/regulation d offerings
Rule 144
Regulation a offerings
Rule 145
Rule 147 intrastate offerings
```
319
Accredited investor:
Earn at least 200k if single
Earn 300k jointly with spouse
Have net worth of 1m ex primary residence.
320
Rule 144
Regulate how control or restricted securities may be sold.
```
Designates:
Holding period for security
The amount of the security THET may be sold
Filing procedures
Method of sake
```
321
Holding period minimum for insiders to book profit on stock
Six months or profit goes back to company
322
Rule 144 on selling controlled or restricted stock:
Limited to the average trading volume of the preceding 4 weeks
Or
1% of the issuers total outstanding stock
For orders of 5000 share or less that do not exceed 50k, form 244 does not need to be filed.
323
Regulation A offering
Aka small business company offering allows the issuer to raise up to 5m in any 12m period w/out full registration w/SEC. Instead the file an abbreviated notice
324
Rule 145
Requires shareholders approve any merger or reorg of ownership
325
Rule 147
Pertains to offerings that are limited to one state.
Exempt from registration with SEC and subject to jurisdiction of the state securities admin.
Headquarters must be I that state.
80% of income and proceeds from the state
80% of assets must be I the state
100% of purchases must be located in that state.
326
Threshold security
Equity security
Registered under section 12 of the Securities Exchange Act of 1934.
There is an aggregate fail-to-deliver position at a clearing form of 10,000 shares or more for 5 consecutive settlement days and such positions represents 0.5% or more of the issuers outstanding securities
The acidity had been included on the threshold securities list by an SEO and the mist had been smdjstribited
327
Listing requirement for NYSE
At least 400!shareholders with holding at least 100! Shares
| At least 1,100,000 publicly held shares.
328
Automated confirmation system (act) / trade reporting facility (Trf)
```
Facilitates the reporting and clearing of trades executed through Nasdaq and other OTC environments.
Includes:
Non-Nasdaq OTC SECURITIES
third market trades
Nasdaq convertible bonds
```
329
Order shredding
Splitting orders in order to increase fees
330
Third market
Transactions for exchange listed securities executed over the counter through the Nasdaq workstation.
331
Proceeds translations
The recommended 5% markup should be split when proceeds of sale are applied to new purchase on same day.
332
TRACE
Trade reporting and compliance engine
Report transactions of eligible fixed income securities including:
Domestic and foreign corporate debt
Dollar denominated debt that is depository eligible
Investment grade and no investment grade issues
Securities issued under the Securities Acr of 1933 that are lower of the 144a transaction
333
Securities exempt from TRACE
```
government (sovereign) debt
Muni debt
Convertible corp debt
CMO's
Repos
Money markets
MBS
ABS
DEVELOPMENT BAN DEBT
```
334
SEC a Rule 201, prohibits shirting when?
Prohibits shorting on down tick if stock is down 10%
335
Rule 80b limits trading if the SP 500 falls...
7/13/20 percent
336
Window for sending customer copy of new account form.
30 days
337
How often must forms verify account info?
36 months
338
Direct registration system (DRS)
Offered through the depository trust corporation will allow investors to hold their securities on the books of the issuer or transfer agent.
339
Death of customer: In order to sell or transfer assets, agent must have:
Letters testimony
Inheritance tax waivers
Certified copy of death certificate
340
Testimony trusts
Trusts that are established under the terms of a will
341
Power of attorney is also known as...
Full discretion
342
Tax free limit for UGMA
14k
343
Regulation S-P
Requires the firm maintain adequate procedures to protect the financial info of the customer.
344
Regulation T of the securities exchange act of 1934
Allowed the FED to regulate extension kid credit by broker dealers.
345
Initial margin for is govt securities and municipal securities
Is govt securities is 1 to 7 % of par
| Munis is the greater of 7.% or 15% of MV
346
Minimum equity value in short market account
30% of the short market value of the account
347
How many days does a customer have to fulfill a margin call
Three business days.
348
Contribution limit for SEP IRA
Lesser of 25% of income or 52k
349
Corporate and muni securities regular way settle
T+3
350
Three categories of stockholders equity.
Capital stock at par: aggregate or for both common and preferred stock
Additional paid in surplus: any sum paid over par by investors when the shares were issued by the company
Retained earnings: profits that have been kept by the corporation; sometimes called earned surplus.
351
Book value per share
Assets - liabilities - par value of preferred / outstanding common
352
Working capital
Current assets - current liabilities
353
Current ratio
Current assets / current liabilities
354
Quick assets
Current assets - inventory
355
Acid test (quick ratio)
Quick assets / current kaibilities
356
Debt to equity ratio
Toto ltd / total shareholders equity
357
Common stock ratio
Common shareholders equity / total capitalization
358
Preferred stock ratio
Preferred stock / total capitalization
359
Bond ratio
Total ltd / total capitalization
360
Efficient market theory: weak, semi strong, strong
Weak: future price can't be predicted from last
Semi strong: market adjusts too quickly to achieve excess return with market info
Strong: current price reflects all info and there's no opportunity to outperform.
361
Parity price of common stock with a convertible debenture.
8% debenture; trading @120 convertible @25
Determine number of share that can be received
1,000 / 25 = 40
Thane market value of convertible / # share
1,200 / 40 = 30
362
How to determine how low a margin account may fall:
Divide the debut balance by .75
363
Formula for mutual fund net investment income:
Dividend income + interest income - expenses
364
If an investor uses SMA to with withdraw cash, what happens to SMA and debit balances?
SMA is reduced and debit bal is increased by same amount.
365
Current yield of a 10% preferred stock trading at 110.
Annual income / market price
$10 / $110 = 9.1%
366
How to calculate minimum maintenance
Multiply long market value by .25
367
You have an open margin account with long market value of 125000 and debit Val of 54000. How low can the value of the securities fall before you get a margin call?
Divide be or balance by .75
54000 / .75 = 72000
368
Optimal investment for college investment
Treasury strips which are government issued zero coupon bonds
369
What type of fund is optimal for a young investor seeking current income?
Corporate bond fund
370
May treasury notes trade in money markets?
Yes, a high quality debt instrument with mess that one year left may
371
What instruments are likely to trade in round lots of 10?
Preferred shares
372
One good reason for a company to buy back its stock and increase treasury stock.
Maintain control, increase eps, fund employee stock plans, pay for a merger
373
Under FINRA's Uniform Practice Code, a stocks ex dividend is is set how?
It's always 2 days prior to record date.
374
A respondent to arbitration has how long to respond?
45 days
375
Where are inter dealer inventories found?
Blue sheets
376
All of the following are examples of retail communication and always require pre approval except:
Blogs, chat rooms, websites, bulletin boards
Chat rooms don't as long as business is not promoted or advice given
377
What is the consideration for market makers?
The spread
378
Is the muni good faith deposit returned to the winning syndicate?
No
379
NIC & TIC
Net interest cost
Most competitive underwriting do for munis are given to syndicate with lowest NIC
True interest cost (includes time value of money)
380
A city lists an add stating it'll accept bids for the sale of bonds. What kind of ad is it?
A notice of sale
381
Mia capital appreciation on OID bonds ordinary income or capital gains?
Ordinary income
382
When is the ex dividend date for stocks?
Two business days prior
383
The maximum duration of a right is:
45 days
384
Which act gave NASD the authority to regulate OTC markets?
The Maloney Act of 1938
385
Holder of an 8% subordinated debenture recieves how much at maturity?
1040. Don't forget the last interest payment.
386
Which FINRA bylaw covers resolution of customer complaints?
Code of Procedure
387
What is the most important factor in determining which underwriter to award a GO Bond.
I net interest cost, NIC, is the cost of borrowing
388
Collateral trust certificates use what as collateral?
They pledge securities which the own issued by another company as collateral for the issue.
389
What constitutes the largest part of the underwriting already for a corporate stock offering?
The selling concession which goes to whoever sells the securities to their clients.
390
The subscription price of a right is:
The price offered to current stockholders during a subsequent primary offering.
This is generally below market value.
391
A customer must return the signed option agreement n how many days?
15
392
Greatest risk when buying a CMO?
Prepayment risk.
393
500 preferred shares paying 12% receives how much?
500 shares x $12 / share = $6,000
394
Sanctions imposed by FINRA are effective within how many days of a written decision?
The decision are final after 30 days.
395
Which organization sets the rules for margin?
the Federal Reseve Board we granted this control under the Securities Exchange Act of 1934
396
Define debenture
Unsecured corporate debt obligations
397
YTM for bond purchases at discount
10% bond @ $900 w/ 10 hrs to maturity
((Annual interest + annual discount) / (price paid + PAR) / 2
((100 + 10) / (900 + 1000) /2
11.57%
Annual discount is found by taking total discount and dividing it by number of years remaining.
398
YTM for bond purchases at premium.
10% bond @ $1100 w 10 yrs left
((Ann interest - ann premium) / (price paid + PAR) / 2
((100 - 10) / (1100 + 1000) / 2
8.57
399
Characteristics of yield to call (ytc)
Ytc will always extend past the YTM.
Ytc will always be the highest God on a bond purchases at a discount
Ytc will always be lowest for a bond purchases at a premium
400
Your brokerage firm regularly trades stock in the third market. What does this mean?
They regularly trade stock on the Nasdaq workstation.
401
If the market opens below a stop limit price, what happens to the order?
The order is elected and becomes a limit order at the limit price.
402
What type of underwriting agreement is likely with a preemptive right offering and why?
A company using a preventive rights offering will use a stand bye underwriting where the underwriter will starve to purchase unsold shares.
403
How long is the free look period on variable annuities?
45 days
404
How many days delivery for an exercised stock option?
3
405
Investor owns 100 shares of 8% preferred paying a quarterly div of $.25. How much does he take in dividends per year?
$8 * 100 = 800
4 * .25 = 100
900
406
Who owns the OCC?
the OCC is wholly owned by the exchanges
407
What is the balance sheet equation?
Assets - liabilities = net worth
408
The maximum contribution to a educational IRA is
2000
409
A fraudulent practice used to entice buyers as a result of new activity in the security is a violation is known as:
Match sales are sales they two parties arrange to increase the volume of the security ownership.
410
What regulates the way members conduct business with other members?
Uniform Practice Code
411
Who issues all standardized options?
The OCC
412
In the opening rotation for options; which open first?
Calls with the lowest strike price and nearest expiration open first.
413
Formula for excess equity in an account
Current market value - debit = equity - reg t at CMV = EE
414
If a client does in testste, who liquidates his assets?
The administrator
I'm testate means without a will
415
How many days does an investor have to deposit funds in a plan when doing an IRA ROLLOVER?
60
416
How long is the window to change from a variable life policy to a whole life policy?
24 months
417
Who participates in the trade of a principal?
Dealer
418
How long does an investor have to bring a case to arbitration?
6 years
419
Who is the nominal owner of a UGMA account?
Custodian
420
What does ERISA regulate?
Private sector pension plans
421
ABC Corporate bid is quoted at 110 and is convertible at 20 per share. What is parity price of stock?
```
# shares = par / CVP or 1000 / 20 = 50
Parity =
CMV 0f bond / # shares or 1100 / 50 = 22
```
422
Formula for pricing open end mutual fund
NAV + SC = POP
423
Customer buys 10m 7% state bonds on April 5 @ 99. They owe what?
9900 plus interest of:
10,000 * 7% * 97 / 360 or 269.44
10,169.44
424
How much is a round lot for munis
$100,000
425
Purchasers of a new IPOD get prospectus if within how many days?
25
426
What is the order of priority for mini bonds when over oversubscribed?
Presage, syndicate, designate, member
427
A consolidated stock reading of 30s/s XYZ Pr C 84.15 means what?
300 shares traded at 84.15; the s/s means round lot of 10 shares.
428
An investor has deposited $14,500 into a variable annuity over three years. The money has grown to 17,800. He withdraws 3k. How much will he pay taxes on?
3k
| All random withdrawals from a variable annuity wi be on LIFO basis and made in the growth in the account.
429
How are most revenue bonds awarded to syndicates?
Through negotiation
430
A muni bond trader calls a market maker asking for a quote. Dealer responds "6.1 bid offered 5.9 out form". Why what does that mean...out firm
Dealer is obligated to another party at that price
431
What type of layout option is optimal for max monthly payments when annuitizing contract?
Life only
432
What does the assumed interest rate affect?
The amount of the annuitys payment and the value of the annuity unit
433
Which is the lowest yield for a bod purchased at s premium?
Yield to call
434
Formula for YTM for a bind purchased at a premium.
(Annual income - annual premium) / (price paid + par)
435
XYZ has 8% subordinated debentures trading at $120. They are convertible into XYZ @ $25. What is parity price?
The parity price is found by determining the number of shares that can be received upon conversion par/conversion price then parity is current market cal of convertible / # shares
1000/25 = 40
1200 / 40
=30
436
Coterminous debt
AKA overlapping debt
Muni debt issued by different mini authorities that draw on revenue from the same tax base
437
For types of short term notes a state or municipality
TAN Tax anticipation notes
RAN Revenue anticipation note
BAN Bond anticipation note
TRAN Tax and revenue anticipation note
438
How are most revenue bonds awarded?
| How are most GO bonds awarded?
Revenue bonds are awarded through negotiation
GO, general obligation, through competitive bidding
439
4 components of underwriters spread (compensation)
Management fee
Underwriting fee
Additional takedown
Selling concession
440
A roundly on municipal securities is how much?
$100,000
441
Who declares that an issue is legally binding?
The bond counsel issues the legal opinion.
442
How is capital gains on OID municipal bonds taxed?
As ordinary income
443
The exercise of a call option results in the delivery of stock in how many days?
Three
444
How many days for settlement of options trades?
Next day
445
How long does a customer have to return a signed options agreement?
15 days
446
A fixed income investor may not write what kind of spread.
It is not possible to to write a rate based covered call as rate based options are based o. Trills that have not been issued yet
447
Useful like of prospectus
Should Updated a every 12 months
Must be updated every 13 months
May be used for 16 months then discarded
448
Taxation on treasuries
Only taxable on Federal level
449
XYZ mutual fund has 10 million in assets and 500 thousand in liabilities with 1 million shares out. What is NAV per share
NAV = 10,000,000 - 500,000 = $9,500,000
Per share 9,500,000/1,000,000 = $9.50
450
Determine investors average cost and price per share.
Average cost is
Total $ invested / tot all number of share
Average price is
Summation of all prix jade prices / number of purchases
451
What type of fund may sell its own shares to investors?
No-load funds only
452
Traits of a UNIT investment Trust (UIT)
Will invest in either a fixed portfolio of securities or no fixed portfolio
Traditionally a fixed UIT INVESTS IN A large block of govt securities
No fixed my buy mutual funds
Neither are actively managed with no board or investment advisors
Both must maintain a secondary market for their shares
453
An investor has 70k to invest in mutual fund with POP OF 20 & SC of 8.5%. Va breakpoint is at 50k for 6% sales charge.
How many share can they buy?
Take POP x complement of sc
.915(100% - sc) =20x.925 = 18.30
This is the NAV
Then take NAV / complement of SC at breakpoint = (100-sc).94 = 18.3/.94 = 19.47
Then 70k / 19.48 = 3595
454
In order to charge the max allowable sales charge of 8.5% requires you offer these three things
Breakpoint sales charge reduction
Rights of accumulation
Automatic reinvestment of dividends and cap gains at NAV
455
Three ways to purchase annuity
Single payment deferred annuity
Single payment immediate annuity
Periodic payment deferred annuity
456
Traits of annuity units
Number of annuity units is fixed and based on the layout option selected,
their age, sex,
the value of account and
assumed interest rate (AIR)
457
6 types of underwriting commitments
```
Firm commitment
Firm with Market out clause
Best efforts
Best effort / mini-maxi
All or none
Standby
```
458
What doe the subscription price of a right represent?
The price offered to current stockholders during s subsequent primary offering
459
Which type if syndicate account is undecided and what does that mean?
Eastern accounts are undecided and must assist in selling the remaining bonds in accordance with their commitment level regardless of which syndicate member was unable to sell them.
460
Traits of a threshold security
SRO's monitor reports from National Securities Clearing Corporation (NSCC) for these:
The security is registered under section 12 of the Securities Exchange Act kf 1934
There is an aggregate fail-to-deliver position at a clearing form of 10k shares for five consecutive days and each position represents 0.5% of the issuers outstanding shares
The security has been imploded in the threshold securities last by a SEO
461
After how many days must a broker dealer cover a failed to deliver?
13
462
```
Define these trade tape terms:
SLD
OPD
Pr
R/T
W/S
s/s
```
```
SLD Trade reported out of sequence
OPD opening Leong after a delay
Pr. Preferred stock
R/T Rights
w/S warrant
s/s round lots of 10 share
```
463
Of the following; which is the hardest to short?
Preferred stock
Listed out option
Non convertible corporate bond
GO municipal bond
Muni bonds are not readily available to be borrowed this difficult to short.
464
Which of the following is most likely to trade in a round lot of 10 shares
Munis
Corporates
Equities
Preferred stock?
Preferred stock
465
In which Thule of account does the nominal owner of the account enter all orders for the beneficial owner? A
Custodial account
466
To open a guardian account, what document must be obtained?
I declaration papers
467
In which type of account does a trustee enter all orders for the owners of the account?
Fiduciary account
468
JTWROS
Joint account with rights of survives hip all assets are transferred into the name of the surviving party.
469
Margin required for purchasing s LEAP with expiration exceeding 9 months.
75% of the options premium
470
What is Regulation T
Sets the minimum initial retirement for purchasing securities on margin
471
Who sets the minimum maintenance for a new margin account?
NYSE / FINRA
472
An investor has an open margin account with 48000 in value and a debit bal of 10k. What is his minimum equity at this level
To find the minimum equity given the long market value, multiply the market value by .25
12000
473
Who sets the initial margin on muni bonds?
NYSE .Municipal bonds are exempt from Reg T; margin is set by SRO.
474
Sample of securities exempt from Reg t
Us govt securities
us govt agencies
Munis
No convertible corp debt
475
Example of nonmarginable securities
Non NASDAQ OTC securities
Options
IPOS less than 30 days
When issued, nonexempt securities
476
You have this:
Long 500 abc @ 27
Long 1500 XYZ @ 42
Long 250 MCS @ 80
Debit Val of 28200
What is min maintenance?
To find the minimum maintenance multiply the long market value by .25
.25 x 96500 = 24125
477
Customer buys 100k principle amount of Ny bridge rev bonds @ 54 in margin account. MBIA much must she deposit?
When buying a muni bond in a margin account, must deposit the greater if 7% of par of 15% of market value.
15% x 54000 = 8100
478
Investor buys 200 share of ABC @ 20 on margin and deposits 2000. Abc falls to 18 and equity drops to 1600. Must she act on this?
No. The 2k deposit is only for initial
479
You have an open margin account with long market Val of 125k and a debit bal of 54k. How low can the Val go before margin call.
The market Val could drop to 72k. Divide debit bal by .75 or 54k /.75
480
What is the window for its rollover
60 days
481
How are gains in qualified accounts taxed when withdrawn?
Ordinary income
482
```
Which of the following is not required on an order ticket?
Commission
Registered reps number
Customer name
Customer account number
```
Commission
483
When investing in DPP, an asset is sold at s price above its depreciated basis and all tax credits have been used up. This is known as what?
Crossover point
484
When investing in a wildcat oil and gas program, most of the tax credits are generate by:
Intangible drilling costs
485
Example of instruments that would create AMT exposure
Interest on some industrial revenue bonds
Some stock options
Accelerated depreciation
Personal property tax on investments that do not generate income
Certain tax deductions passes through from DPPS
486
What does the securities act of 1934 regulate?
The secondary market
487
Rule of fair practice covers:
Commissions and markups
Retail and instititional communications
Customer recommendations
Claims made by reps
488
Uniform practice code covers:
```
Settlement date
Ex dividend date
Rules of good delivery
Confirmations
DK procedures
```
489
The code of procedure covers:
How FINRA investigates complaints and violations.
490
Who is exempt from registration?
Clerical
Non supervising officers and managers not dealing with customers
Non U.S. citizens working abroad
Floor personnel
491
Time of principal: must approve these four things
New accounts
Retail communications
Transactions
Correspondence
492
When FINRA investigates, how many days do you have to provide info
25 days
493
FINRA has taken disciplinary action. The decision of the Department of Enforcement becomes final in how many days?
45
494
Sanctions impaired by FINRA are effective within how many days of a written decisions?
30
495
Conduit theory
IRS classification that allows a regulated investment company to avoid paying taxes on investment income if it distributes it to shareholders
496
```
Determine customer equity in this combined account
LMV 60000
Debit 25000
SMV 40000
Credit 62000
```
(LMV-Debit)+(credit-SMV)
| (60000-25000)+(62000-40000) = 57000
497
501c3
Nonprofit organization / tax exempt organization
498
Settlor functions
Not all decisions directly involving a plan, even when made by a fiduciary, are subject to ERISAs fiduciary rules. These decisions are commonly referred to as "settlor" functions.
Choosing type of plan
Amending a plan
Requiring employee contributions
Terminating a plan
499
What does ERISAS regulate?
```
Pension plan participation
Funding
Voting
Communication
Beneficiaries
```
500
2 forms of ERISA vesting
3-6 year gradual vesting schedule
| 3 yr cliff: nothing till three years then full
501
An investor purchases 10m XYZ j&j 8% corporate bonds on Monday April 1 for regular way settle. How much accrued interest do they owe?
(10000 x .08) x (93/360)
= 800 x .2583 = 206.67
360 day year each mo has 30 days
Us govt securities use actual days
502
Delivery of round lots
Stock certificates must be delivered in denominations that are in round lots or in lots that can easily be rolled into round lots
503
Funded debt
The corporations debt that comes due in five years or more
504
Three components of stockholders equity
Capital stock at par (common and preferred)
Additional paid in surplus: any sum paid over par when shares were issued
Retained earnings
505
When hypothecating customer securities, to obtain a loan Folsom a bank, at what value may they broker dealer lace on the securities?
140% of the customers debit balance
506
Short against the box
A short position established against an equal long position in the security to roll tax liability forward.
507
Spousal account
An KRA opened for a no working spouse that allows a full contribution to be made for the no working spouse.
508
Spread Load Plan
A contractual plan to spread the sales charge over a longer period.
Detailed in Spread Load Plan Act of 1970.
Max sales charge override of plan is 9% while the max sales charge in any one year is 20%
509
Statutory voting
A method of voting where where voters must cast votes evenly across directors.
510
Stopping stock
Specialist guarantees a price but works it better
511
Sub chapter S
A business organization that allows the tax consequences of the organization to pass through to the owners
512
Subscription agreement
An application signed by the purchaser of an interest in a direct participation plan. An investor does not officially join until the GP signs.
513
Takedown
The price at which a syndicate purchases a new issue of securities from the issuer.
514
Tax preference item
An item that received preferential tax treatment and must be added back into income when calculating AMT.
515
Top heavy rule
The max salary for which a Keogh contribution may be based. This is in effect to limit the disparity between high and low salary employees
516
Unit of beneficial interest
The redeemable share issued to investors in a unit investment trust
517
Unit refund annuity
An annuity payout option that will make payments to the annuitant for life.
If they die before its all paid, the balance is paid to beneficiaries
518
Yellow sheets
A daily publication provided by the national quotation bureau providing quotes for corporate bonds
519
Investment Advisor vs. IA reps
Only the company and the publisher of the marketer yet are investment advisors. Individual as are invesent advisor representatives.
520
Yellow sheets
A daily publication published by the national quotation bureau providing quotes for corporate bonds
521
Workout quote
A no firm quite that requires handling and settlement conditions to be worked out between the parties prior to the trade
522
Working interest
An interest that requires the holder to bear the proportional expenses and allows the holder to share the revenue produced by an oil or gas project in relation to the interest
523
Working capital
A measure of a corporations liquidity that is found by subtracting current liabilities from current assets
524
Workable indication
An indication of the prices and yields that are a municipal securities dealer may be willing to buy or sell bonds
525
Term of a warrant
A long term security that gives the holder the
right to purchase the common shares of a corporation for up to 10 years. The warrants subscription price is always higher than the price of the underlying common shares when the warrant is initially issued.
526
Variable death benefit
The amount of a death benefit paid the beneficiary that is based on the investment results of the insurance company's separate account. The amount is over the contracts minimum guaranteed death benefit.
527
Variable life insurance
A life insurance policy that provides for s minimum guaranteed death benefit as well as an additional death benefit based on the investment results of the separate account.
528
Monetary requirement for a benefit plan to be considered institutional?
1 million dollars
529
Is a trust indenture a security?
No. A trust indenture is the contract between a corporate issuer of debt securities and a trustee. It is not a security.
530
Floor fee on market report to be considered an IA?
The publisher of a market report that charges a fee in excess of $200 per year based on market developments is an investment advisor.
531
The Securities Act of 1933
The Securities Act of 1933 was the fm first major piece of securities industry regulation which was brought about largely as a result of the "29 crash.
532
Cooling off period
Introduced in Securities Act of 1933 whereby SEC will review registration statement for at least 20 days. During this time, no sale of securities may occur.
533
Deficiency letter
Issued by the SEC when they require more information during a resignation. This may extend the cooling off period beyond the normal 20 days.
534
S1
The formal name of the registration statement is the issuers full disclosure doc for registration with the SEC.
535
Red-herring
During the cooling off period the only thing a registered rep may do is obtain indications of interest from clients by providing them with a preliminary prospectus.
536
Access equals delivery rule
If the issuer has filed a prospectus with the sec and the prospectus may be viewed on the SEC website, the prospectus will be deemed to have been provided to the investor through the "access equals delivery" rule
537
13 things required on final prospectus
```
Type and description of securities
Price of securities
Use of proceeds
Underwriters discount
Date of offering
Type and description of underwriting
Business history of issuer
Bio data of camp officers and directors
Info on large stockholders
Company financial data
Risks to purchasers
Legal matters concerning the company
SEC disclaimer
```
538
SEC disclaimer
Must appear on the cover of all prospectuses:
"These securities have not been approved by the SEC nor have they been approved of disapproved by the SEC nor have any representations have been made about the accuracy or the adequacy of the information"
539
Misrepresentations
Financial relief made under a Securities Act of 1933
540
From whom may financial relief be claimed for misrepresentations? (5)
The issuer
The underwriters
Officers and directors
All Parties who signed the registration statement
Accountants and attorneys who prepared stmt
541
Securities act of 1934 (12)
2nd act after crash
2ndy mkt and OTC
Created SEC
Requires registration of broker dealers and agents
Regulates exchanges and NASD / FINRA
requires net capital for brokers
Regulate short sales
Regulates insider transactions
Requires public companies to solicit proxies
Requires segregation of firm and customer money
Authorizes FED on EXTENTION of credit under reg t
Regulates the handling of client accounts
542
SEC
SRO
DEA
SEC is the ultimate authority and a govt body. 5 commissioners / 5 yr terms / approved by senate. Neither a SRO OR DEA
SRO regulates its own members: NYSE, FINRA
DEA, designated examining authority insects books and may also by BYSE or FINRA
543
Who must register with SEC?
Issuers of securities with more than 500!shareholders and with assets exceeding $5 million. They must also file quarterly and annual reports and solicit proxies from stockholders.
544
Extension of credit 3 regulations
Securities act of 1934 authorized Fed.
Regulation T : broker dealers
regulation U : banks
Regulation g: all other financial institutions
545
What regulate all companies I the business to provide retail distribution of gas and electric power?
Public utilities holding company act of 1935
Because companies are regulated by this act, their securities are exempt from state registration requirements.
546
Maloney act of 1938
Amendment to the securities exchange act of 1934
| Created NASD, the SRO of OTC
547
Four bylaws of NASD
Rules of fair practice
Uniform practice code
Code of procedure
Code of arbitration
548
Trust indenture act of 1939
Corporate bonds issue on excess of 5million that are to be repaid in one year must issue a trust indenture
549
Investment Adviser act of 1940 set registration requirements for advisors and state they must disclose these six things:
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Methods of recommendations
Types of securities recommended
Professional back ground and qualifications
Fees to be charged
Method for computing and charging fees
Types of clients
```
550
Investment company act of 1940 (3 types)
Management investment companies
Unit investment trusts
Face-amount companies
551
What SIPC doesn't cover
SIPC does not consider a margin account and a cash account as delegate customers, and the customer would be covered for the max of 500k
SIPC does not offer coverage for commodities contracts and all member firms must display the SIPC sign in the lobby.
552
Fidelity bond
All SIPC members are required to obtain a fidelity bond to protect customers. The min fidelity bond is 25k
553
Definition of insider
Officer
Director
10% stockholder
Anyone in possession of no public material info
554
Insider trader fines
The greater if 300% of the gain or loss avoided or 1mill for the person. Who acts in the info.
A fine of up to 1mill for the person. Who divulges info
Insiders may be sued by the affected parties
Criminal prosecution
Sec pays up to 10% to informants
555
Telephone consumer act of 1991
Calls only between 8am and 9pm in customers time zone
Maintain do not call lis
Give prospect the name, address and phone number when soliciting
Follow adequate procedures to maintain do not call list
Trains reps on calling policies and do not call list
Ensure fans solicitations have name, number and address
556
Exemptions from Teel consumer protection act
Calls to existing customers
Calls to delinquent debtor
Calls from religious and nonprofit
Calls may be made outside the windows to businesses.
557
National securities market improvement act of 1996
States or political subdivisions can't impose laws or read that differ for securities exchange act of 1934 relating to
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Capital requirements
Recordkeeping
Financial repetitive
Margin
Custody
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Also, states have no authority to regulate IA firms that are federally registered
558
Uniform securities act (6)
AKA Blue Sky Laws:
Prohibits state admins from using post for personal gain
Gives admin right to enforce USA in state
Gives admin right to set certain registration requirements
Allows admin to set fee and testing read
Permits admins to suspend or revoke state registrations
Sets civil and criminal penalties
559
Uniform prudent investors act of 1994 - five fundamental changes
The main consideration of a fiduciary is the management and trade off between risk and reward
The standard of prudence for each investment will be viewed in relationship to the overall portfolio
The rules regarding diversification have become part of prudent investing
The restrictions from investing in various those have been removed and trustee may invest in anything prudent
The rules of fasting duties has been removed
560
The Howey test 4 characteristics
Used by Supreme Court to determine if something is a security
- an investment of money
- involves a common enterprise
- investor has expectation of a profit
- entails the management of a third party
561
7 examples of securities and key identifying terms
```
Stocks
Bonds
Notes
Debentures
Evidence of indebtedness
Transferable shares
Warrants, rights, options
- certificate, variable, interest in
```
562
Examples of what is not a security (11)
```
Real estate
Retirement plans - ira, 401
Bank accounts
Collectibles
Precious metals
Fixed annuities
While and term life policy
Antiques
Futures contracts
Trade confirmations
Prospectuses
```
563
9 examples of a person
```
Natural person
Corporation
Trust
Government organization
Partnership
Joint stock company
Sole proprietor
Association
Unincorporated organization
```
564
An example of a non-person - 3
A minor
Someone deemed legally incompetent
Deceased individual
565
Broker dealer registration
Home state and states of individual customers
566
Broker dealer is not (5)
An agent
A bank
A savings and loan
A person w/no place of business in state and deals exclusively with financial institutions or issuers
A perso. W/ no place of bus. In the state who conducts bus. W/ existing clients who do not raise in state and are in state for
567
Agent registration
Home state,
State of employ
State of customer residence
No registration required if:
Represent an issuer or BD in an underwriting transaction
Represent a band or S&L in issuance of securities
Represent exempt issuers
568
Example of exempt securities (6)
U.S. Govt
State and muni govt
Canadian fed and muni govt
CP w/ maturities of
569
Qualified Purchaser
Individual w/ at least 5mil I'm investments
A family owned business with at least 5m in investments
A trust sponsored by a qualified purchaser.
570
Only three parties may guarantee something
U.S. Govt
Insurance company
Parent company
571
Contumely
The willful display of contempt for the administrators order
572
A federally covered security
A security listed on a stock exchange
An investment company security
Securities sold to qualified purchasers
Securities w/ info available in national journal like Moody's
573
Changes in agents employment
Change in firm entered in the Central Registration Depository (CDC)
Termination becomes effective 30 days after notifying unless admin is in process of suspending or revoking. Admin has one year to revoke.
574
Canadian firms and agents
May engage in translations a a long as they have no office in the state.
If I. Good Canadian standing may register through a simplified process." Which is effective after 30 days.
575
State registration exemptions for IA's (5)
Federally registered
Manage portions for investment companies
Manage portfolios > $110mill
Have no office in the state and do bus. Only with financial institutions
Have no office in state and offer advice to 5 or fewer clients in any 12 months
576
de minimus exemption
Have no office in state and do business with 5 or fewer clients in any 12 months period
577
The national securities market improvement act of 1997 / the coordination action
Eliminated regulatory duplication of effort and established registration requirements for IA's.
A federally covered IA must reuters with SEC and is any IA who:
ManGed > 110mil
Managed investment company portfolios
Is not registered under state laws
578
IA registration and AUM
>110 mil mist resister federally
| If falls below 90 m must register w/ state via ADV-W w/in 180 days
579
Dodd-Frank a Wall Street Reform Act of 2010 & 4 categories of IA
Increased AUM for fed registration
Small IA 25m 100m
Pension consultants must have > 200m AUM to be eligible for federal registration
580
Capital requirements for IAs
If they have full discretion, or custody, of customer funds, they must have 35k or surety bond
If only limited discretionary power, 10k
581
IA advertising and sales literature
Possible admin approval (3)
Record keeping (3)
Admin may require prior approval of
Form letters
Prospectuses
Pamphlets
Keep these for five years
Ads and sales literature
Account statements
Order tickets
582
IA books and records
Kept for five years and readily accessible for 2
583
Brochure delivery
All
Prospective clients must receive brochure or form ADV Part 2 at least 48 hrs prior to signing contract of client is give 5 day grace period Tj with withdraw w/out penalty
584
ADV Part 2 states (5)
```
How and when fees are charged
The tykes of securities the advisor uses
How recommendations are made
The type of clients the advisor had
The qualifications of officers and directors
```
585
Wrap account
Charges one fee for both the Asvos received as well as the cost of the transactions.
586
Three methods of registering securities Ina state:
Coordination
Notice filing
Qualification
587
Registration of IPO through coordination (6)
Copies of prospectus
Any amendments to prospectus
The Amy of securities to be offered I state
Lost of other state where it will be offered
Consent to service of process
Other info required by admin
588
Registration. Through notice filing (7)
```
Issuers name and address
Type of organization
Description of securities
Copy of prospectus
Copy of docs filed with sec
Consent to service of process
State fee
```
589
Five examples of financial institutions
```
Banks
Insurance companies
Investment companies
Broker dealers
Pension plans w/ > 1m in assets
```
590
That's actions with and 6 examples of fiduciaries
All transactions with fiduciaries are exempt from registration.
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Trustees
Executors
Guardians
Sheriffs/marshals
Administrators
Receivers
```
591
Transaction with underwriters
Exempt from state registration
592
Offers to existing securities holders
Transactions with existing holders of:
Convertible securities
No transferable warrants
Transferable warrants exercisable within 90 days
All are exempt if no commission is involved
593
Reorganization certificate
An agreement to purchase securities prior to the formation of a corporation.
Exempt if no commission involved
Number of subscribers may not exceed 10.
Subscriber may not make any payments.
594
Nonissuer transactions
Transaction of publicly traded securities and is exempt if the issuer meets these read:
securities registered under section 12 of the securities exchange act of 1934 and has been reporting for 180 days
Or
Securities are registered INDER investment company act of 1940
Or
Issuer filed the info required by the securities exchange act of 1934 w/ the admin for at least 180 days prior to the transaction
595
Updating form ADV
Must be done annually within 90 days of fiscal year end
| Additionally, must provide each client with an updated brochure annually within 120 days of the advisors fiscal year end
596
Disclosures of IAs (6)
```
Conflicts of interest
Sources of recommendations
Location of customer funds
Anyway action taken against IA
MATERIAL FACTS
soft dollar arrangements
Also
If a major shareholder sells
Major partner leaves
```
If an officer leaves or minor partner leaves, no disclosure necessary
597
Private investment company reqs for charging performance fee
Minimum of 1m AUM or net worth of 2m
598
Rule changes
An admin may change a rule as they see necessary. For how long may the change be appealed?
60 days
599
Summary order (3)
May be issued w/out a hearing
- to deny or revoke the exemption form registration of a security registration
- to postpone or suspend the registration of an agent during an investigation
- to postpone or suspend the registration of a security during an investigation
Parties must be notified that a hearing will be granted within 15 days
600
Punishment for knowingly and willfully criminally violating USA
5k fine and or 3 yrs in prison
601
Punishment for violation of Investment Advisors act of 1940
10 and or 5 yrs in jail
602
Right of rescission
Offers must be in writing
| Buyer had 30 days to accept offer
603
Statute of Limitations on sales that violate USA
Purchaser has two years from discovery or three years from purchase date, whichever comes first
604
Minimum financial requirements for individual to be considered a qualified purchaser.
5m in assets individually or jointly with spouse / family.
605
Minimum assets to be considered an institutional investor
1m
606
Trust indenture
A trust indenture is the contract between a corporate issuer of debt securities and a trustee. It is not a security.
607
An individual gives 1500 share of assessable stock to his child. Under USA is this a sale?
Yes
A gift of assessable stock is considered to be a sale.. Assessable stock can require the owner to make additional payments.
608
Annual subscription fee cutoff for market report publisher to be considered an investment advisor.
200 / yr
609
Qualified purchaser (3)
An individual with at least 5m in investments
Family owned business w/at least 5m in invest
A trust sponsors by qualified purchasers
610
Define "broker"
A broker is a person that executed an order for its account or for the accounts of others.
611
An offer of securities is considered to have been made when?
When the prospectus has been diverted
612
The uniform securities act defined an issuer as a:
Corporation proposing the same of common shares
613
When has an offer to sell been made?
When a representative has made a recommendation.
614
De minimus limits
An IA is limited to giving advice to five clients or fewer during a 12 month period
De minimus is: have no office in the state and offer advice
615
With whom must a IA register if they start with 107m?
An IA with between 100 and 110m may resister with either the SEC or state.
616
Fees and forms with wrap accounts
One fee for advice and execution. Investor must recover Schedule H at the time the account is opened.
617
A securities state registration becomes effective after how many days?
20
618
Are securities listed on a a foreign exchange exempt?
No
619
An issuer whose registration has already become effective with the SEC will most likely twister with the state how?
Notice filing
620
Must a representative always inform the principal of complaints?
No. If the client outs the complaint I writing, then the Represetative must inform the principal.
621
May an agent offer to constantly monitor a clients account during market hours?
No, this is a violation as it is unreasonable.
622
Window for hearing when requested by firm after state admin notifies of intention to revoke registration.
15 days
623
Who enforced and administers USA
The states
624
Principal shareholder
Any person who is directly or indirectly the beneficial owner of more than 20% of any class of equity security of an issuer
625
If an agent files an appeal of the admin order, how many does do they have to file?
60
626
The maximum monetary fine for violating USA
5k
627
Travel damages
3x the amount of ill gotten gains
628
Why may an admin cancel the registration of a firm or agent?
If it ceases to exist or fails to pay filing fees.
If the firm has violated the USA, the admin would revoke or suspend its registration
629
Impersonal advisory services
Activities of an IA that do not meet the specific needs or objectives of a client, or which do not render an opinion of the investment merits of a particular security.
