Review Questions Flashcards
1
Q
What does a municipal principal approve/review?
A
Each new account, each municipal transaction, each customer complaint, mailing pieces that solicit business
2
Q
What’s bullish?
A
Inverted head and shoulders
Saucers
3
Q
What does the fill or kill order do?
A
It gives the trader one try, on which they must take the full trade or cancel the order.
4
Q
What limited real estate partnership doesn’t do depreciation?
A
Raw land
5
Q
How do capital gains work?
A
Long term is taxed at a max of 15%-20%; short term is taxed at income tax bracket, max of 37%
6
Q
Consolidated tape shows NYSE trades that happen where?
A
Everywhere
7
Q
What’s NASDAQ’s order system?
A
NASDAQ Market Center Execution System (Single Book)
8
Q
What’s NYSE’s order book?
A
SuperDisplay Book
9
Q
Do tapes show commissions?
A
No. Just the cost of the stock
10
Q
If a person becomes disabled before 59.5, what happens to their IRA withdrawals?
A
They can be made penalty tax free, but still are taxable as ordinary income
11
Q
When does a company need shareholder approval?
A
For stock splits or to issue convertible shares. Basically anything that’s going to decrease someone’s share in the company.
12
Q
What is a defensive company regarding the business cycle?
A
Not normally effected by the changing economy.
Industry example: Pharmaceuticals
13
Q
What are the classic cyclical stocks?
A
Car manufacturers, home builders, and durable goods producers
14
Q
What are institutional clients?
A
Banks Investment companies Insurance companies Employee benefit plans with at least 100 employees Persons with at least $50 million
15
Q
When do communications with institutional clients need to be reviewed?
A
post
16
Q
How do you tell open end companies apart from closed end?
A
Open end companies trade with a sales charge, closed end do not
Open end must be sold for at least NAV, closed end don’t have that requirement
17
Q
What has a negative long term effect on stock prices?
A
Rising interest rates
Rising capital gain tax rates
Rising inflation rates
18
Q
What are factors that cause a security to be more volatile?
A
Lower coupon Discounted Long term Large discount Large premium
19
Q
What’s the senior citizen rule say?
A
Senior citizens must understand the risks, benefits, and costs of the product
20
Q
What is true about variable annuities?
A
They must be registered with the SEC
They must be sold with a prospectus
They are participating forms of the investment company
They are sold with a sales charge
21
Q
At what level are gain and loss computed in a partnership?
A
The individual partner’s level
22
Q
Are partnerships taxable entities?
A
No
23
Q
What is true about a bank qualified municipal issue?
A
It must be a public purpose issue
The purchasing bank can deduct 80% of the interest expenses used to fund the purchase of the bonds
24
Q
What do we know about new municipal selling practices?
A
Customer needs a copy of the Final Official Statement if it’s printed
Spread must be disclosed on non-competitive bids and negotiated bids
Customer must receive order priority provisions used by manager
Customer must receive confirmation showing the purchase price
25
What can REITs invest in?
Real estate, mortgages, and government securities (not in limited partnerships)
26
How does margining work and who uses it?
It uses a standardized stress-testing of price declines or increases to compute margins
Used by institutional investors
27
How do corporations raise funds to build new facilities?
Issuing rights to outstanding shares of common stock
28
What does FINRA's 5% Policy apply to?
Over-the-counter and exchange transactions that don't involve a prospectus
29
Which bid is always filled: non-competitive or competitive?
Non-competitive bids. They can be placed by individuals
30
What serial bonds have declining interest payments that are equally offset by rising principal repayments?
Level debt service serial bonds
31
What is the main difference between an open end management company and a closed end management company?
Capitalization. Open end funds continuously issue and redeem shares.
Closed-end funds have a one time stock issuance and the fund is closed to new investment.
32
Are options changed on stock dividends?
No. The contract isn't changed unless exercised, in which case the deliverable is adjusted
33
What is required for discretionary margin accounts?
Completed New Account Form
Signed Trading Authorization
Signed Customer's Agreement
Signature of Manager on New Account Form
34
What's the highest to lowest CMO tranches?
Companion
Plain vanilla
Targeted amortization class
Planned amortization class
35
What is true about the PHLX World Currency options?
They settle in U.S dollars
They can only be exercised at expiration (they're European)
There's a standardized contract size
The performance of the writer on an exercise is guaranteed by the O.C.C
36
403(b) plans allow for what?
Fixed and variable annuities
37
If an officer in a company has shares of that issuer they got from the open market, what must they do to sell those shares?
There is no holding period, but a form 144 must be filed with the SEC
This is called "control stock". The 6 month holding period would be required for restricted stock, but not control stock
38
What must a syndicate member do when they purchase funds for an accumulation account?
The member must disclose to the manager that the bonds are being purchased for an accumulation account, and the manager will disclose the order to the other syndicate members when the account is closed. It is treated as a member takedown order
39
What is the maximum load on mutual funds?
8.5%
40
Name the markets
Primary Market: Initial issues of shares going to the public for the first time
Secondary Market: Trading of Issued listed securities. Has 4 submarkets:
First Market: Trading of exchange listed securities on the floor of a stock exchange
Second Market: Over the Counter (OTC) trading of non-listed securities
Third Market: Trading of exchange listed issues on an over the counter basis
Fourth Market: ECNs/ATSs.
41
What is another name for open ended funds?
Mutual funds
42
What are broad based securities?
Indexes that measure across markets. Namely, S&P 100 Index (OEX), S&P 500 Index (SPX), and Major Market Index (XMI)
43
What is the maximum contribution to a Keogh Plan?
25% of income up to $55,000
44
Who sets the ex-date?
FINRA
45
What is the order for the FINRA code of procedure?
Filing of complaint and response to the District Hearing Panel
District Hearing Panel hearing (Decision isn't final)
First appeal to the National Adjudicatory Council
Second Appeal - SEC
Final Appeal - Federal Court
46
What is open interest and how is it increased/decreased
It's the number of open options contracts. Increased by opening contracts. Decreased by closing them
47
What guarantees does a variable annuity have?
Expense and mortality guarantees
48
Maximum loss when long stock and short a call?
Stock purchase price - premium received
49
What is the minimum and maximum bid for T-Bills at auction for non-competitive bids? For competitive bids?
For non-competitive:
$100 minimum
$5,000,000 maximum
For competitive:
$5,000,000 minimum
No maximum dollar amount, but there is a maximum amount of 35% of the securities offered in a single auction
50
What is the Registered Options Principal responsible for?
Account approval
Retail communications approval
Writing procedures for supervision of options accounts
Reviewing of procedures for supervision of options accounts
The approval of options advertising.
51
Who does the initial approval of options accounts?
Branch manager or registered options principal
52
What does "funded debt" refer to?
Long-term corporate debt. Not commercial paper because commercial paper is short term
53
What is the quoting method for Corporate and Municipal Bonds?
1/8ths
54
What is the quoting method for U.S. Government Bonds?
1/32nds, can be done as a decimal, a dash, or a :
55
How often do bonds pay interest?
Semi-annually
56
What are the marketable U.S treasury securities and their times to maturity?
Treasury Bill: 4, 13, 26, or 52 weeks
Treasury Note: 1-10 years
Treasury Bond: 10-30 years
57
What are the maturities on STRIPS and TIPS?
STRIPS: 1-10 years
TIPS: 1-10 years
58
What government security has no reinvestment risk?
STRIPS
59
What IRA format for small businesses allows them to change the contribution amount each year?
SEP IRA
60
Compare tendering and deal sweetening for stocks and bonds
Stocks: minimum 20 days, each sweetening is +10 days
Bonds: minimum 5 days, each sweetening + 5 days
61
What is the maximum offering for regulation crowdfunding?
$1,000,000
62
What is the maximum a single client can invest into a regulation crowdfunding offering?
$100,000
63
Collection Ratio?
Taxes collected/Taxes assessed
64
What is an Equity REIT? How is it correlated?
Equity Real Estate Investment Trust. Negatively correlated to stock prices.
Equity REITs don't pay tax on distributed portions of income provided they distribute at least 90% of their earnings and have at least 75% of their income related to real estate. Dividends that customers receive are taxed at normal income rates
65
Who issues Eurodollar bonds?
U.S. Corporations, U.S. State and Local governments, Foreign corporations, foreign governments, supranational agencies
66
Under Regulation ATS, what is the registration requirement for ECNs?
If they have 5% or more of NMS's trading volume, they must register as broker-dealers
67
What happens with appreciated stock that is donated to charity?
The donator gets a deduction equal to CMV of the stock. Additionally, if the stock has been held over a year, there is no tax due on the appreciation
68
What is a riskless/simultaneous trade?
After receiving the order, the dealer buys the security into their inventory to sell to the customer
69
How many stocks are in the DJIA?
30
70
How many stocks are in the Dow Jones Composite Average?
65
71
Are 529 Plan contributions tax-deductible?
No
72
What happens if someone signs a letter of intent for a breakpoint but doesn't pay all the way up to the breakpoint?
The breakpoint is recalculated using the actual amount paid in
73
Initial margins for margin accounts?
50% or at least $2,000 of equity
74
Minimum Maintenance Margins for margin accounts?
Stocks and Convertibles: 25% for a long position; 30% for a short position
Corporate Bonds: Greater of 20% of MV or 7% of face
Municipal Bonds: Greater of 15% of MV or 7% of face
75
What orders are placed above the current market price?
Sell Limits and Buy Stops (SLoBS)
76
What orders are placed beneath the current market price?
Buy Limits and Sell Stops (BLiSS)
77
Under Rule 147, when is trading permitted inside the state? Outside the state?
Inside: immediately; Outside: after 6 months
78
What is an agency cross transaction?
When a broker receives an order to buy a security from one customer, and an order to sell that security from another customer at the same time at the same amount
79
What is the maximum gift according to MSRB?
$100
80
Who sets the ex-date for mutual funds?
The Fund Board of Directors
81
What happens to the price of tranches when interest rates rise?
The price of tranches falls
82
What happens when a registered representative fails to note the execution price on a ticket?
The ticket is returned to the representative for entry of the execution price
83
What are considerations of warrants?
They're considered to be an equity-related security that allow the holder to buy the stock of that issuer at a fixed price, and are attractive because of the leverage they offer
84
What is the nominal interest rate on TIPS compared to an equivalent Treasury Bond?
The TIPS nominal rate will be less than the Treasury Bond rate
85
Is non-recourse financing included in tax basis? Who is responsible for the financing?
It is not included in the tax basis, and therefore the limited partner isn't responsible. Basis can only include what a person is actually responsible for.
86
What does the lead underwriter earn on each security sold in a corporate underwriting?
Management fee
87
How do you calculate the value of a right?
(Market Price - Subscription Price)/(N+1)
88
How does the OCC adjust options contracts for cash dividends?
If it's a regular dividend, there's no adjustment. If it's a one-time, special dividend, the strike price will be reduced by the amount of the dividend
89
Who can do repurchase agreements with government and agency securities as collateral?
Commercial banks
Federal Reserve banks
Government securities dealers
Federal Home Loan banks can't.
90
How does the Capital Asset Pricing Model (CAPM) help investors
It selects stocks with the highest expected return based on the investor's tolerance for risk.
91
What rule permits pre-arranged trades by insiders?
Rule 10b-5-1
92
What does Regulation SHO state if a stock falls by 10% or more?
It can only be sold short on an upbid
Short sales of the security are subject to the bid test rule for the remainder of that trading day and the entire next trading day.
93
Is the SIPC a government agency?
No. It's government sponsored, but not a government agency
94
What does the SIPC do?
Insures customer accounts at broker-dealers for up to $500,000, inclusive of a maximum cash coverage of $250,000
95
What does a municipal syndicate member earn on each sale they make?
Total Takedown (Selling Concession + Additional Takedown)
96
What does each municipal selling group member earn on sales they make?
Selling concession
97
What does a municipal syndicate member earn on each sale their selling group member makes
Additional Takedown (Total Takedown they would normally earn minus the selling concession that their selling group member earns)
98
What are the types of Direct Participation Programs?
Oil Drilling
Agricultural Production,
Equipment Leasing
(REITs are not included)
99
What does declining inflation do to bond prices and yields?
Prices rise, yields fall
100
Who can join together to qualify for a breakpoint on their aggregate purchases of mutual funds?
Family members in the same household
101
What is the minimum equity for portfolio margining, and who is it suitable for?
Equity of $100,000; suitable only for sophisticated investors
102
What items are exempt from reorganization registration statements under Rule 145?
Stock Splits
Change in Par Value
Stock Dividends
103
What items require a registration statement to be filed under Rule 145
Reorganization involving one security being substituted for another
Merger or consolidation in which securities of existing holders will be exchanged for securities in the new entry
Transfer of assets from one person to another in consideration for the issuance of new securities
104
What are the three types of investment companies defined under the Investment Companies Act of 1940?
Face-amount certificate company
Management company
Unit investment trust
105
How often should fixed fee accounts be reviewed under FINRA standards?
At least annually
106
What's the difference between Supply Side and Keynesian economic theories?
Supply Side = Less taxes and less government spending = good stuff
Keynesian = More taxes and more government spending = good stuff
107
Can a custodian of a custodian account enter trades? Can they authorize a third party?
Yes they can enter trades. No they can't authorize a third party
108
When must a disclosure document be provided for a non-managed fee based account? How often must the account be reviewed?
Prior to opening of account the document must be provided, and the account must be reviewed annually
109
What does ACT's TRF report?
NASDAQ Trades
NYSE trades in the third market (OTC)
Over the counter trades of OTCBB and Pink Sheet issues
NASDAQ and NYSE listed issues that happen through ECNs and ATSs.
110
Inventory turnover ratio?
COGS/Inventory
111
Who sets the minimum maintenance margin and who sets the initial margin?
Initial is Federal Reserve Board (FRB); maintenance is FINRA
112
When can a new issue be quoted on NASDAQ?
Immediately
113
What would you find on a When, As, and If Issued listing?
Trading date and trading price
114
Who guarantees Industrial Revenue Bonds?
The corporate leasee
115
Can a high income earner establish either a 529 plan or a Coverdell savings plan?
They can establish a 529, but not a Coverdell
116
What form must a customer file to declare bankruptcy and when must it be filed?
8k within 4 business days of the event
117
Is the mill rate calculated based off of assessed or fair market value?
Assessed
118
Where are fines for insider trading paid to?
The Department of the Treasury
119
When are mutual fund capital gains taxed?
The year they are distributed
120
What is the O.C.C responsible for?
Standardization of listed options contracts
Issuance of listed options contracts
Assignment of exercises of listed options contracts
121
What must be kept for specified time periods under MSRB rules?
Trade comparisons
Customer account statements
Customer complaints
122
What will happen if a recession is expected?
Customers will sell corporate bonds and the yields of corporate bonds will increase
123
Do income bonds guarantee dividends or repayment of principal?
Nope. They guarantee neither
124
What can be purchased on margin?
Listed corporate stocks or bonds
125
Where do futures contracts trade?
Chicago Board of Trade (CBOT)
126
What does the Specialist (DMM) do?
Acts as a dealer trading for their own account
Executes orders for other brokers
Executes round lot orders
Executes odd lot orders
127
What is an efficient market characterized by?
High trading volume and low spreads
128
Who earns commission and who earns markups?
Broker earns commission, dealer earns markups
129
What is required for new account forms?
Customer name and address (both people if joint)
Cash or margin account
Customer DOB
Customer Social Security or Tax I.D #
Occupation (whether they work for another brokerage firm)
Registered Rep Signature
130
How soon after the opening of a new account must a customer verify the account profile?
30 days
131
How often must account info verification be sent?
36 months
132
What is the sequence for suitability determinations?
Reasonable Basis
Customer-specific
Quantitative
133
What makes a trade be considered discretionary?
If the size and/or security are chosen by the broker
134
Explain interest accrual
Corporate and Municipal: 30/360
Governments: Actual/Actual
Interest accrues up to but not including settlement dates
135
How do settlement dates work?
Cash: Same day
Government and Options: T+1
Municipal and Corporate: T+2
Reg T: T+4
