Review from Exam II Flashcards
review gap spots learned from Exam II
What is a Restricted Security?
a security acquired privately (i.e. private placement) and not through a public offering
Securities Exchange Act of 1934
- Governs trading markets for existing securities and registration requirements of BDs, BD employees, and exchanges
- Established the Securities and Exchange Commission (SEC)
Market Order
Executed Immediatley; Fill guaranteed but price is not
Define Current Yield
the annual income (or coupon rate) from a bond divided by the bond’s current market price. If the CY is lower than the coupon rate, it is because the bond is trading at a premium
Stop Limit Order
Turn into limit orders when price is triggered. Guaranteed price, not fill, when price is triggered.
How long must a firm keep their stock certificate book?
For the life of the firm
Under the Securities Exchange Act of 1934, what is the statute of limitations on fradulent practices?
5 year from the event date itself or 2 years from the discovery date; whichever occurs sooner
If there’s a corporate bankruptcy, what is the order of payment?
Wages, taxes, secured debtholders, unsecured debtholders (including general creditors), holders of subordinated debt, preferred stockholders, and common stock holders
How long do hold restrictions apply for nonaffiliate (noninsider) and affiliate (insider) traders?
6 months; nonaffiliates have no volume restrictions afterwards; affiliates are subject to volume restrictions afterwards
Limit Order
Price is guaranteed, fill/execution is not
Business Risk
Operating risk from a business making a poor managment decision like spending a lot of money launching a new product that consumers don’t buy.
Sovereign Risk
risk of a country defaulting on its debt obligations
What are control securities?
Securities owned by directors, officers, or persons who own or control >10% or more of the issuer’s voting stock (measured per household, not per individual)
The Securities Act of 1933
- Primary purpose- require full and fair disclosure in connection with the sale of securities to the public
- Governs the new issuance (primary) market, which involves the money-raising activities of issues
- Requires issuers to register their securities when selling to the public
- This federal law requires that issuers who want to raise capital by making a public offering of securities to the public, provide full and fair disclosure of all material facts about the company and the securities being offered.
- aka Paper Act, Prospectus Act, or New Issues Act.
Prepayment Risk
Risk that an issuer will repay principal on a bond before all interest payments are made (so the investor doesn’t get future interest payments).
Financial Risk
similar to business risk but specifically related to a business not being able to pay its debt obligations.
Can mutual funds be purchased on margin? What about ETFs?
MFs cannot be purchased on margin but ETFs can
How many types of systematic risks are there and what are they?
Market risk- if the overall market declines, you stock will too.
Interest rate risk- changes in bond prices from rising and falling interest rates; duration- the longer the bond the more risk because the greater time period that bond is subject to changing interest rates
reinvestment risk- when interest rates fall and it is more difficult to reinvest your money and maintain similar returns
inflation Risk (purchasing power risk)- if your returns are outpaced by inflation, you functionally have less money
Investment Advisers Act of 1940
Governs the regulation of firms that earn fees for providing investment advice; states who must register with the SEC as an investment adviser
What is systematic risk?
Risk that changes in the overall economy that will have an adverse effect on everyone. No one can diversify away from systematic risk
The Insider Trading and Securities Fraud Enforcement Act of 1988
amends Securities Exchange Act of 1934 and specifies penalties for insider trading and securities fraud
Currency Risk
risk that the value of a foreign security declines because that country’s currency loses value relative to the USD
What are the three types of bond maturities?
Term bond- entire principal is paid at once
Serial bond- payments are made at intervals over several years until it’s paid in full
Balloon bond- a serial and term bond; where issuer makes regular payments but makes a very large one at the end.
Political Risk
instability in the political foundations of a country; common with emerging economics and sometimes in highly developed economies.
What’s shown on a bond trade confirmation?
- Trade Date
- Description of the security
- CUSIP number (Committee on Uniform Securities Identification Procedures)
- Commissions (not markups or markdowns)
- Price, Yield, & Amount
There is no obligation to print the bond credit rating
Investment Company Act of 1940
Governs the regulation of packaged products like mutual funds, closed-end funds, and unit investment trusts
Regulatory Risk
a sudden change in the regulatory climate that will have a dramatic impact upon a company. Ex- EPA sets new emissions standards that make a line of large trucks unsellable
Marginable Securities
- Exchanged-listed stocks
- NASDAQ listed stocks
- FRB Approved
- New Issues & Open-End funds after 30 days
DPP real estate programs come in which different types?
raw land, new construction, and existing properties
Liquidity Risk
That you can’t find a market to sell your securities; aka marketability risk
What are the two basic account types for Section 529 plans?
Savings plans and Prepaid tuiton plans. NOT Educational savings accounts (ESAs)
Capital Risk
The potential for the investor to lose all his invested capital due to reasons that are independent of the issuer’s financial strength
How long do volume limits apply for registered stock that is held by an affiliate (insider)?
indefinitely but there is no minimum holding period
Legislative Risk
A change in law that directly impacts a business or industry. Ex- a luxury tax on high-end cars or boats.
Stop Order
Become market order when price is triggered.
Use- a timing device to get in or out of a position
Strategy- limit losses or protect gains
Securities that are not eligible for margin
- Options
- Non-NASDAQ stocks
- New Issues & Open-end Funds
What is the difference between an Equity REIT, a Mortgage REIT, and a hybrid REIT?
An Equity REIT typically holds commerical property (vs. residential). a Mortgage REIT holds mortgages on commercial property. Hybrids do both (own commercial property and the mortgage on them)
The USA PATRIOT ACT
- Covers anti-money laundering (AML) policies and procedures that must be followed by financial firms
- Requires firms that suspect financial crimes to report them to the Financial Crimes Enforcement Network (FinCEN) (which is a bureau of the U.S. Treasury Department)
Securities Investor Protection Act of 1970 (SIPA)
Covers the protection thresholds for customers in the event of a BD’s bankrupty. Created the Securities Investor Protection Corporation (SIPC)
