Series 65 Terms & Definitions Flashcards
Form 13F
Investment managers with discretion over portfolios with $100MM AUM+ must file quarterly
Form U-2
Uniform Consent to Service of Process (state)
This is a statement of eligibility for the filing of a security
Bankers’ Acceptances
Short-Term notes that facilitate import/export activity
EDGAR stands for..
Electronic Data Gathering Analytics and Retrieval system
A Cash account is what type of account?
“Type 1” Acct
Broker / Dealers mark up and mark down when acting in a…
PRINCIPAL capacity
A BUY-STOP is often used to protect a _____ position?
Short Position
Money Market Instruments are made up of…
Repurchase Agreements (Repos)
Commerical Paper
Bankers’ Acceptances
Negotiable or Jumbo CDs
Limit Orders trade at a given price or…
Better
European Options can only be executed when?
On the last business day prior to the expiration date
Stock warrants are ______ term
Stock Warrants are LONG term
Stock Rights and Options are _________ term
Stock Rights and Stock Options are both SHORT term
In order to generate income one would…
SELL COVERED CALLS (premium received)
Futures trade via…
EXCHANGES
Are Futures margined or not?
Yes, FUTURES are MARGINED
Forward contracts trade how?
OVER THE COUNTER (OTC)
Are Forward contracts margined?
NO, FORWARD contracts are NOT MARGINED
What series license does one need to trade either Futures or Forward contracts?
Series 3
ETFs trade in what type of market?
The secondary market
Which series license does one need to trade ETFs?
A series 7 is required to trade ETFs
Can ETFs be sold short?
Yes
Can ETFs be purchased in a margin account?
Yes
Exchange Traded Notes (ETNs) trade on the exchange at ___, ___, & ____ maturities?
ETNs: 10yr, 30 yr, 40 yr maturities
Annuity Withdrawals are always taken how?
LIFO
Earnings always come out FIRST and are 100% taxable as ordinary income
Stockholders’ Equity Consists of what THREE elements?
Stock
Capital Surplus
Retained Earnings
Stockholders’ Equity is also known as _____ or _____ ?
Net Worth or Book Value
Current Ratio is used to measure what?
A Company’s SHORT-TERM Financial Health
The best example of an open-ended fund is what?
Mutual Funds
What is the main advantage of an open-end mutual fund?
Diversification
What is the max 12b-1 fee for mutual funds?
0.25%
Define “Net Redemption”
When more shares of a mutual fund are being redeemed than purchased.
- Causes the fund’s overall NAV to decrease
- *Shareholders’ NAV per share remains unchanged
SEC Regulation A allows what?
It allows issuers to sell relatively small issues of securities to the public by filing a SHORTER, SIMPLIFIED REG STATEMENT
Under the USA a private placement of NEW securities is considered to be an ______ transaction as long as no more than ___ offers during a ____ months period and where NO COMMISSIONS ARE PAID?
Exempt
10 people
12 months
Under the USA, NON-ISSUER transactions are considered _____?
Non-Issuer transactions are EXEMPT
“SALES” Do NOT include ______ pledges or _______ using stock as collateral?
Bona Fide Pledges
Loans
Under USA, securities issues by Foreign Companies are considered ______?
FOREIGN CO’S SECURITIES –> NOT EXEMPT
403-B Tax-Sheltered annuity contributions are made with Post or Pre-Tax dollars?
403-B contributions are always made with PRE-Tax dollars
TSTRIPS are what type of securities?
T-Strips = Zero-Coupon securities (meaning they do not pay interest)
Do zero-coupon securities pay interest?
NO
Current Yield equation is…?
The percentage rate (ex 5% T-Note) DIVIDED by present Market Price.
%/MP
The credit balance of a Margin account consists of:
Proceeds of a Short Sale PLUS the Reg T Deposit
Exempt Securities are exempt from what THREE elements?
Exempt Securities are EXEMPT from:
State Registration
Advertising & Sales Literature Filing requirements
Under NASAA regarding custody and 3rd parties, checks must be forwarded within ____?
24 hours
Define “House Call”
“House Call” is when a Brokerage Firm makes a margin call in an amount that exceeds FINRA’s min maintenance requirements.
Under the USA, Individuals must register as an Agent when….
selling LPs (LIMITED PARTNERSHIPS) on behalf of an ISSUER
ERISA limits of pension fund assets which may be invested in the securities of the employer to ____ %
10%
Define “Consolidating”
It means that the market is moving sideways
Short-Term Capital Gains and Dividends are taxed as what?
Ordinary Income
When one buys an Open-End mutual fund share, you pay the _____ ?
ASK
When one sells an Open-End mutual fund share, you receive the ____?
NAV
Buying a Call is ____?
BULLISH
Selling a Put is _____?
BULLISH
Shorting (selling) a Call is ___?
BEARISH
Long a Put is _____?
BEARISH
Investors can write a max of ______ annually in capital loses?
$3,000
On Gifts made prior to death, who assumes the cost basis and is responsible for any potential capital gains taxes?
The RECIPIENT
Internal Rate of Return is defined as…?
The RATE at which NET INFLOWS = NET OUTFLOWS
The SHARPE Ratio measures
Risk VS Reward
Define “Assessable Stock”
It is stock that was ISSUED BELOW PAR for which the issuer has the right to ASSESS to SHAREHOLDERS for the UNPAID PAR VALUE
(most stock is unassessable)
If an IAR is terminated, who has to notify the administrator?
Only the Investment Advisory Firm
Define the “Blue Chip” exemption
Exchange-Listed stock qualifies as exempt because of it
Are Banks and Bank Holding Companies defined as “Investment Advisors”?
NO
Holding Period Return is…?
It’s the TOTAL RETURN on an investment over a period of time (usually shown as a %)
NASDAQ-listed securities are not considered exempt unless they are listed on….
the NASDAQ NMS (National Market System)
An Investment Advisor is required to register is all of his customers are _____ but not if all of his customers are ____?
Banks
Insurance Companies
Examples of Cyclical stocks include…?
Autos
Airlines
Hotels
Restaurants
Examples of Counter-Cyclical stocks include…?
Utilities
Groceries
Gas
4 Phases of Market Condition:
Expansion (Recovery)
Peak
Contraction (Recession)
Trough
Who sets Monetary Policy?
Federal Reserve Board
How does the Fed Reserve Board effect Monetary Policy?
By changing interest rates and increasing/decreasing the money supply by Buying or Selling securities
Define the Federal Funds rate
The interest rate that member banks charge each other for loans overnight
A change in tax law is an example of _____ policy?
Fiscal
Define LIBOR
London Interbank Offered Rate.
It is the rate that International Banks dealing in EURODOLLARS charge each other for Large Loans
What is FOREX?
A 24 hr OTC Marketplace where CURRENCIES trade in PAIRS. Not open weekends or holidays
Define “Prime Rate”
A rate used by Banks for their BEST Commercial customers.
*Prime interest rate is not a factor in calculating total return
Define “Credit Spread”
It’s the difference between the returns on two bonds with the same maturity date but differing credit ratings.
*Typically US govt security vs corp bond. The difference shows the additional cost incurred by a corporation when borrowing money. A “tight” credit spread is good for businesses but it’s challenging for an investor looking for income.
Define GDP
Value of ALL Goods and Services produced by Labor AND Property located WITHIN a Country’s borders.
*Base upon geographic location, NOT ownership
Define M1
Includes: ALL Physical Currency (dollars and coins) as well as Demand Deposits (Checking accounts and Negotiable Order of Withdrawal (NOW) accounts)
Very Liquid.
Define M2
Include M1 + Time-Related Deposits, Savings Deposits, and Non-Institutional Money-Market Funds,
*Also Known As “Money Supply”
Define “Balance of Payments Accounts”
It’s an accounting of a country’s international transactions for a certain period of time.
Define “Balance of Trade Accounts”
This consists of all raw materials and manufactures goods bought, sold, or given away.
*It also includes services
Define what “Footnotes” are and where they are found.
They are found on a balance sheet.
They are items added to a Corporate Balance Sheet for clarification.
They are important b/c they may show UNDISCLOSED DEBT
Where are Revenue and Dividends found?
On the INCOME STATEMENT
What does the Income Statement list?
Revenue
Depreciation
Net Income
What does the Cash Flow Statement do?
It measures NET INCOME + CHARGES that do not require CURRENT expenditures such as AMORTIZATION, DEPLETION, and DEPRECIATION
Define Regulation T
Requires 50% of purchase price to be held in margin account.
Set by the Federal Reserve Board
Record Keeping for B/Ds and IAs?
BDs: 3 years
IAs: 5 years
If Registration for an Investment Advisor is terminated, the IA must maintain a surety bond for how many years?
3 years
What Are the THREE types of Investment Companies?
- ) FACE Amount Certificates (Sold at a discount)*No longer exist
- ) Unit Investment Trusts (Pooled investments, unmanaged)
- ) Management companies
Define Guaranteed Security
Payment of Principal, Interest, and Dividends are guaranteed by a backing party. (Ex. Gov’t, Insurance Companies, Parent Companies)
Most IPOs Register via…?
COORDINATION.
Requires 3 copies of prospectus, articles of incorporation, and copy of indentures
Civil Liabilities timelines for action
Action must be taken within 3 years of the violation or 2 years from discovery of the violation, WHICHEVER COMES FIRST
Define “Stagflation”
A Stagnate economy with inflation; The Economy is Slowing while Prices are Increasing
Recession is defined as
2 Quarters of GDP decline (6 months)
Depression is defined as
8 Quarters of GDP decline (24 months)
Examples of Leading Indicators
Machine Tool Orders
Building Permits
Housing Starts
S&P 500
Examples of COINCIDENT Indicators
Personal Income
Index of Industrial Production
Manufacturing & Trade Sales
S&P 500
Example of Lagging Indicators
Employment
Corporate Profits
Business Inventories
Fiscal Policy is set by whom?
President and Congress.
What are the Primary Tools of Fiscal Policy?
Federal Taxation and spending.
Raise Taxes to slow economy, lower taxes to stimulate the economy
Keynsian Theory
Government Control; Keynes advocated for increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the depression.
Subsequently, Keynesian economics was used to refer to the concept that optimal economic performance could be achieved—and economic slumps prevented—by influencing aggregate demand through activist stabilization and economic intervention policies by the government. Keynesian economics is considered a “demand-side” theory that focuses on changes in the economy over the short run.
Supply Side Economics
No Govt Meddling, Business will take care of itself
Federal Reserve System has how many member banks across the US?
13
Discount Rate
The Amount The Fed Reserve charges Member Banks which then charge other retail banks
Federal Open Market Committee
Fed buys and sells Govt securities to increase, decrease the amount of money in the economy
Credit Spreads typically _____ when a Recession is expected and ______ when a Recovery is expected?
Widen.
Narrow
What is a Credit Spread?
It’s the difference in Interest Rates between US Treasury Bonds and AAA Corporate Bonds
Current Ratio Formula
Current Assets / Current Liabilities
Acid Test (AKA Quick Ratio) Formula
Current Assets - Inventory / Current Liabilities
*Most STRINGENT Measurement of LIQUIDITY
Debt to Equity Ratio
Measures How Risky the business’s Capital Structure is.
Total Liabilities / Stockholders’ Equity
* The higher the ratio indicates the higher the debt
Earnings Per Share
Measures portion of stock issuer’s earnings that is available to common stakeholders.
Net Income - Preferred Dividend / Common Shares outstanding
Price Earning Ratio
Compares stock’s Current Market Price relative to its earnings per share.
Market Price / EPS
* Used to determine whether or not the stock is fairly priced in the market relative to other issuers in the same industry.
Dividend Payout Ratio
DIVIDENDS PAID / NET INCOME
Measures the generosity of the issuer’s Board Of Directors.
* This shows an investor how much of the earnings were retained by the issuer
Limit Order
- 2nd most common type of order
- orders to trade a security at a given price or better
Stop Order
Orders to trade a security if a given trigger price is struck
Open Buy Stop
Used to protect a long position’s downside risk or when stock is put into inventory ar a price lower than the current market price
Buy Limit
Can be entered so that the investor will buy at the desired price
Buys/Sells location in relation to current market price:
1.) _________
2.) _________
3.) ________________
________________________________________________
_________________Current Market Price_______________
4.) __________ 5.) ________________
6.) ________________
- ) Buy Stop
- ) Buy Stop Limit
- ) Sell Limit
- ) Buy Limit
- ) Sell Stop
- ) Sell Stop Limit
Short Sale
Occurs when an investor sells shares he doesn’t own but has borrowed
Marginable
Yes to:
- ) Exchange listed stocks and bonds
- ) OTC issues approved by the FRB
- ) Warrants
NO to:
- ) Put and call options
- ) Rights
- ) OTC issues NOT approved by the FRB
- ) Insurance contracts
Type 1 vs Type 2 accounts
Type 1 are cash accounts
Type 2 are Margin accounts
First Market
Trading of securities listed on the exchange (NYSE)
Second Market
Trading unlisted securities over the counter OTC
Third Market
Listed Securities OTC
Fourth Market
LARGE BLOCKS between INSTITUTIONAL investors via ECN
CBOE
Chicago Board Options Exchange
DMM
- Designated Marker Maker
- One for each security on NASDAQ (not NYSE)
- The NASDAQ version of a specialist on the NYSE
Markups/Markdowns occur when?
When a B/D is acting as a DEALER
Commissions occur when?
When a B/D is acting as a Broker or Agent
ABC –> Agent, Broker, Commission
NOW Accounts
Negotiable Orders of Withdrawal
Money Market Instruments
- T-Bills, T-Notes, T-Bonds (< 1yr)
- Bankers Acceptances
- Commercial Paper (Blue Chip companies, sold at a discount, matures at face value) *P1, P2, P3 (P3 lowest)
- Repurchase agreements (Repos)
Demand Deposits (Types)
- Checking accounts
- NOW accounts
- Money Market accounts
- Some savings accounts
M1 Money Supply
- Cash
- Demand Deposits
M2 Money Supply
- Cash
- Demand Deposits
- CDs
U.S. Gov’t Fixed Income Securities (types)
- T-Bonds, T-Notes, & T-Bills
- TIPs (Treasury Inflation-Protected Securities)
- STRIPS
- Non-Marketable Savings Bonds (ex. E.E. Bonds)
Agency Fixed Income Securities (types)
- Ginnie Mae
- Fannie Mae
- Freddie Mac (FHLMC)
- Fed Home Loan Bank (FHLB)
- Sallie Mae
General Obligation (GO) Bonds
- Type of municipal bond
- Backed by State and it’s ability to tax
Types of Secured Corporate Bonds
- Mortgage (ex. Factory)
- Collateral Trust (owning shares of other companies’ stock in trust)
- Equipment trust
Types of UNsecured Corporate Bonds
- Debentures (nothing backing it)
- Subordinated debt
Asset-Backed Securities
- Mortgages
- Auto loans
- Credit cards
- Leases (oil leases)
- Royalties
T-Bills (maturities)
UP TO ONE YEAR (MAX)
- 4 Weeks
- 13 Weeks
- 26 Weeks
- 52 Weeks
T-Notes (maturities)
2 YRS to 10 YRS
- 2 yr
- 3 yr
- 5 yr
- 10 yr
T-Bonds (maturities)
10 Years +
- 10 yrs
- 15 yrs
- 20 yrs
- 25 yrs
- 30 yrs
Treasury Bills
- aka “O.I.D.”s (Original Issue Discount instruments)
- Issued in $1,000 increments
- NO stated interest; DO NOT pay semi-annual interest
- Matures at Par value
- Bought at a DISCOUNT from par
- Sold through AUCTIONS
Treasury Notes
- INTEREST-BEARING
- Stated Interest Rate
- Interest Paid SEMI-ANNUALLY
- Issued in $1,000 denominations
- Maturities: 2 yr, 3 yr, 5 yr, 10 yr
- Quoted in points as % of Par value
- **- 1/32 Increments, represented with a period
ex. 97.16 = $970 + $5.00 (16/32) =$975
Treasury Bonds
- INTEREST-BEARING
- Stated Interest (coupon) Rates
- Paid Fixed Interest Rate SEMI-ANNUALLY
- Issued In BOOK-ENTRY form (electronic)
- $1,000 Dollars per Bond
- Maturities: 10 yrs +
- Quoted in points as a % of Par value
- 1/32 Increments
- Represented with a period
ex. 102.20 = $1,020 + $6.25 (20/32) = $1,026.25
TIPS
- Treasury Inflation-Protected Security
- Issued by Treasury
- Principal adjusted for Inflation (using CPI)
- Stated interest rate is constant
- SEMI-ANNUAL Payments Fluctuate Because Stated Rate is Applied
STRIPS
Separately Traded Registered Interest and Principal Securities
- ZERO-COUPON bonds DEEPLY DISCOUNTED by U.S. Treasury
- these ACCRETE in value = they GAIN in value every year
- The GAIN is considered INTEREST INCOME
- TAXED on the accretion ANNUALLY (Phantom Interest)
- **Popular in Tax-Sheltered Accts; IRAs, COverdells, 529s
Corporate Bond Taxation
Interest is taxable at all levels - Federal - State (if applicable) - City (if applicable) Capital Gains Taxable IF bond sells at profit to investor (if prior to maturity)
Revenue Bonds
- Self-Supporting –> Backed by user fees, revenues, or assessments
- Project-centered (ex. Hospitals, Toll roads, Airports)
IDRs
- Issued to construct sports stadium and parking lots
- Backed by corps
- Typically NOT EXEMPT from Federal Taxes
Muni Bonds Taxation
Capital Gains: Taxable at all levels (if sold at a gain before maturity)
Federal Level: Tax free
State Level: Tax Free ONLY IF Bought AND Issued in Investor’s state of residence
S & P Investment Grade Bonds (list)
AAA
AA
A
BBB
Moody’s Investment Grade Bonds (list)
Aaa
Aa
A
Ba
Define “Duration”
- A time-weighted measure of the cash flows provided by a bond
-It is a better measurement of Interest Rate sensitivity than Maturity - *The LOWER the Coupon Rate, the LONGER its Duration
_ **Bonds with Coupons GREATER than 0%, Duration is ALWAYS LESS than Bond’s Maturity - *** The Longer a Bond’s Duration, the more its price will Change in response to a 1% change in interest rates.
Current Yield Equation
Annual $ Coupon / Current Market Price X 100
Three other terms than mean “Interest Rate”
Coupon Rate
Nominal Rate
Stated Rate
List Yields from Highest to Lowest for a DISCOUNT bond.
Discount Bond: YTC (Highest) YTM CY Nominal
List Yields from Highest to Lowest for a PREMIUM bond.
Premium Bond: Nominal (Highest) CY YTM YTC
Do bonds have voting rights?
NO
Preferred Stock
- PAYS DIVIDENDS
- NO Voting Rights
- Considered “Senior Securities”
- NO Preemptive Rights
