Series 7 Flashcards
ANALYSIS
Broadest money supply?
M3 or L
money supply
M1- all currency in circulation
M2- savings + CDs. time deposits
M3- jumbo CDs (100k)
L- savings bonds and money market instrucments
Net working capital, net worth
current assets- current liabilities
toootal oassets- total liabilities
loan rates
Prime- bank to instutition
broker call- bank to broker dealer.
customers- call loan +x%
Discount- US treasury to bank
Fed- bank to bank
Keynesian vs Supply side vs Monetarist
Keynseian- consumption drives growth. gov spending
Supply side- reganomics, taxation
Monetarist- FRB determines economic growth and monetary policy
Discount rate
FRB monetary tools
discount rate
open market operations- daily buying and selling treasury secuirities between fed dealers
Reserve requirement
FOMC
federal open market committee- manages open market secuirities used by FRB
Liquidity measures
net working capital
current ratio= assets/ liabilities
quick acid test ratio= assets- inventory/ liabilities
short interest theory
high indicates market oversold and ready for upturn
low shows overbought
CAPM
capital asset pricing model- reflects diversibiable and non diversifiable risk (market
-beta and alpha
beta and alpha
beta- expected return, compare to benchmark
alpha- specific stock. actual vs expected
blue chip companies
established american companies steady growth and dividends
Growth companies
high PE and low dividend
depreciation methods
straight line, double declining balance (acc), sum of years digits (acc)
Head and shoulders
top- reverse upwards
bottom- reverse downwards
Safety
current income
growth
aggressive growth
liquidity
bullet
barbell
ladder
bullet- same target date, bought over time. beneficial- interest rise. not lower
barbell- short and long term bonds average life near target date. best with variable interest rates
Ladder- bonds purchased one time with maturities at regular intervals. protects in rising interest rates
S&p 500
Willshire 5000
value line
russell 2000
s&p 500-
willshire- Broadest 3.5k issues
value line- very broad 1.7k.
Russell- 2k small cap
Pre-refunded GO bonds
safest municipal bond
escrowed by issuer with treasury or agency secuirities to be retired at near term call date.
AAA. shortish maturity
growth vs value
grwoth- stock appreciation rate
value- PE and price/book value ratios
allocations:
portfolio rebalancing
strategic asset management
tactical asset allocation
active asset managemenet
portfolio rebalancing- reallocation of funds into asset allocation model. overperforming assets, underperforming
strategic asset management- determination of percentage of assets in each class
tactical asset allocation- permited variation from fixed percetnages
active asset managemenet- pursuit of returns in excess of benchmark. Undervalued stocks
lead liquid
private placements
cost basis and sales proceeds
cost basis: sale price + commission
sales proceeds: sales price- commission
Capital gains: sales proceeds- cost basisis
Things that impact cost basis
stock splits- lower
spin off
Accretion vs Amoritization
accretion- discount below par, cost basis raised
Amortization- premium above par, cost basis lowered
Tax bond rules
Corporate- must or may?
Municipal?
Reportable interest income?
Corporate: may. OID MUST
Municipal: must Market D may
OID not taxable
discount- increase
premium- decrease
Cost basis of funds share
purchase price+ reinvested distribution/ total shares in fund= average cost per share
Wash sale rule
Municipal tax bond swap
61 days. 30 before, 30 after
-buying a call
deep in the money put
convertible bond or preferred stock
right/ warrant
loss allowed if two features are different.
Estate taxes/ gift taxes
progressive tax 11.58 million
23 million if married
Corp characteristics
unlimited life
free trasnferability of shares
limited liability
centralized managment
-if avoid 2, conduit taxation, not taxed as corp
conduit taxation
buisness passes along income and losses to partners
K1
individual partners file taxes for business using K1
recourse loan
secured financing. other assets
Oil and gas programs
Exploratory wild cat. high intangible drillin costs
development step out- moderate everything
incoe stripper wells- low IDC, low risk reward
AMT
if donation reduces taxable income substantially, triggers alternative min tax
1099- DIV
1099-INT
DIV- cash dividends and capital gains
INT- interest and tax free interest
Corporate taxation exlcusions
may exclude 50% of dividends (common and preferred)
interest income 100% taxable except tax-free municipal
MARCS
modified accelerate cost recovery stystem
aircraft, oil, drilling, ocmputer equipment
depreciated on straight line method over 27 1/2 years
control pereson
10% or more interest held by immediate family members
natural person
legal person
human
legally created entitiy
code of procedure
- district hearing panel
- adjudicators council
- SEC appeal
- federal court
Red herring
preliminary prospectus, indications of interest to set the final offering price
effective date
SEC declares issue effective. Underwriter sets effective date
exempt from 1933
Commercial paper, gov secuirities, municipal, agency
charitable or non profit SBIC small business investment companies
insurance companies
Rule 147
intrastate issues. Common stock issued within 1 state and only residents of that state.
issuer can advertise to any
cannot sell out of state for 6 mo after effective date
Regulation 8
Start up comapnies to raise capital
issues small dollar amounts of secuirities within 12 months
Tier 1- 20 million no audited financial statments
Tier 2- 75 milion audited satements. A+
Dislcosure: circular rather than prospectus
1A filled with SEC and a 20 day review period
1A
Regulation A, filled with SEC before issue is sold
circular
disclosure for Reg A rather than prospectus
Rule 415
shelf registration
seasoend companies to issue shares quickly, blanket registration with SEC
2 day notice
Regulation D
private placements
accredited investor- 1 mil net worth, 200k income. 5 mil assets
non accredited- letter understanding risk
Regulation M
public oferings. prohibitions on syndicate members during 20 day cooling period
Stabilization rules- included in prospectus
market manipulation- broker dealers cannot purchase shares to cover short positions within 5 days of effecive date
Rule 144
sale of restricted and control stock
1% outstanding shares, 4 weeks trading volume, 4x a year
unregistered shares held for 6 mo before they can be sold
- company must be public and SEC required filings current
- form can only be filled every 3 months, 4x a year
applies to insiders and affiliates- relatives, etc
144a
private placements with qualified institutional buyers QIBs 100 mil assets
no filing if sale every 90 days is no more than 5k sharesworth no more than 50 k
shares illiquid or inacctive, PORTAL trading
145
SEC requires registration statements when public traded secuirities created due to mergers, spinoff, etc
Bond tender offer rules
attempting to buy majority stake in company
makers offer prices at premium, contigent on min number of shares being tendered
initial offer 20 business days SEC rules, each sweetening extends by 10 days
short tender
investors can only tender shares they are net long
10b5
catch all fraud rule
10b-18
allow issuer to buy shares at highest bid or last reported sale price
1 broker dealer, cannot be opening transaction, executed within 10 min of close activity, must not be higher than market price or exceed 25% of trading valme
insider
10% holder, officer, director. must report status to SEC
report trades within 2 business days
Reg sho
before it can be sold short, locate requirement
rules for selling secuirities short
stabilization
satbilization of new issue in secondary market.
underwriter can stabilize price at or below POP
notice of stabilization in prospectus
13 D
proxies. filled with SEC 5% or more of a companies stock. 10 days
10k
balance sheet
income statement
cash flow statement
retained earnings
8k
1939
trust indenture act.
corporate bonds
protect bond holders SEC covenants or promises to bond buyer
trustee appointed bank or trust company
1940
investment advisors act
not required to register- banks, attorneys, accountants
Sarbanes Oxley Act
- faster reporting of trades
analysts separate from broker dealer investment banking functions
CEO and CFO annual certification of appropriateness financial statements
Penny stock 15g1-6
risk disclosure
exempt if customer signed 3 suitability determinations or done one trade before
bid/ask must be disclosed, compensation earned by rep, customer provided with monthly statements
CFTC
futures market. commodities futures trading commmission
EMMA
electronic municipal market
official statements for new issues, prerefunded bond info, 529 plans, municipal trades
CBOE rules
any options commuincation not occompanied by ODD disclosure be fille dwith exchange 10 days in advance of use
REgulation FD
fair disclosure inside trading.
prohibits issuers from making dslective disclosure to reasearch, mutual fund, and other professionals
NEW ISSUES
New issue requirements
prospectus, Registration with SEC
shelf offering
3 year shelf life,blue chip companies file blanket registration
Sales within 2 days of SEC notification
IPO 5130 Rule
restricted persons may not buy common IPOs
provide eligibility every 12 months (neg) and at account 9pos_
Restricted- FINRA members, finra employees and family
Syndicate letter-
participation % allocation, compensation (concession, liability
selling group member
agent helps find customers for new issues but neither participates in selling or liability.
selling concession
Managing underwriter
Forms syndicate and establishes spread and portions.
management fee
syndicate members
share in financinal liability and profit
underwriters concession
underwriting spread
difference bewteen POP and price bid by syndicate
Spread components
management- syndicate manager
underwriting fee- syndicate members
selling concession- seller earns
20 day cooling off
SEC filing
shares must be sold at POP
permitted- red herring prelim prospetus, indications of interest, tombstone without POP
tombstone announcment
issuer, business, secuirty,
gross offering size, POP, names of members
public sale
shares sold at POP
prospectus must be delivered at or prior to confirmation of sale
Disclaimer on front page
Delivery- 90 days for IPOs
good faith deposit
specified in official notice of sale for new municipal bond issue
cashier or ceritied check which each underwriter must submit
returned to unsuccessful bidders day winning underwriter is announced
municipal competitive bid
lowest interest rate bid wins
computation of weighted average interest cost to issuer without considering time value NIC net interest cost
premium subtracted from NIC, discount added
-qualified and unqualified opinions
NIC
net interest cost
computation of weighted average interest cost to issuerwithout considering time value .
premium subtracted from NIC, discount is added
official notice of sale
priority order for sale for municpal
PGDM
presale, group, designated orders, member
official statement for municipal
provides disclosure, requrested by underwriters to perform due diligence
delivered by settlement
competitive vs non compeitive bid
compeitive bid- primary dealers, gov secuirities dealers, other institutions
max bid 35% of total offering
noncompeitive bid- small insutitional investors. Max $5 million
Gov quoted on
yield basis
Bills auction
auctioned by fed as agent weekly
issued by treasury, issued on thursday
52 week is monthly
EMMA
MSRBs public web portal for information on municipal markets including official statements
Bloomberg
published daily, dealings offerings of muniicpal bonds in secondary market
quotes for any size, quotes subject to prior sale of change in price
-Quotes firm unless stated. Can be any size, doesn’t need to be round
quotes are bona fide
Standard and poors
Summaries of all corporate bonds
munifacts wire
owned by bond buyer, market info of new municpal bond offerings. official notice of sale, bond redemption, statistics of interest rates
Bests ratings
independent ocmpany. rates insurance companies
CRD
finras database of info on each representative including discipline history
Bond buyer index
yield of 20 GO bonds with 20 years to maturity AA rated or better
Revdex
yield to maturity by Bond Buyer. 25 revenue bonds, 30 years maturity
Standard and poors
100 index OEX, traded on CBOE
OEX
american style actively traded
standard and poors
500 index SPX european style
XMI
major market index AMEX
Dow jones
DJX CBOE
OEX spx most popular XMI broad based less popular
value line
vlleo phlx
willshire
all american stocks. broad measure
NYSE composite index
2.5k on NYSE
Qualified vs nonqualified pension plans
qualified- pre-tax funded. tax deductible
IRS DOL qualifies, cannot descriminate, zero cost based
nonqualified- after tax not tax deductible
eg. variable annuity, deferred comp, payroll deduction
accumulation may be tax deferred, earnings over cost basis taxed.
Simple IRA
14k max salary reduction 2-3% match
SEP IRA
25% of employee income
403 b tax
qualified annuities
tax deductible to employee
Keogh HR-10
61k max contibution. 20%
inherited IRA
only spouse can roll over funds in a new IRA under benefiicary name
distributions immedaite and deplete over 10 years
cost basis of secuirities is 0
market value of distrubition date= sales proceeds
defined benefit vs defined contribution pension plans
benefit- known benefit at retirement. high salaried emplyees, funding employer
contribution- unknown retirement. formula based. favors long tendured.
ERISA
employee retirement income secuirty act 1974
segregation of funds from corporate assets, non discirimation
departments:
margin departments
purchase of sales
reorgainzation
order department
margin- all accounts maintained under margin regulations of FRB and finra
purchase- processing orders
reorganization- secuirities changes in capitalization due to mergers, aquisitions, stock splits
oorder department- routing buy and sell orders
GMIB
guranteed minimum income benefit. only occurs at annuitization and over accumulation phase
accumulation phase
all interest dividends and capital gains realized from secuirites in separate accounts. must be reinvested to buy more accumulation units
build up of reinvested dividends is tax deferred
accumulation unit
accounting measure of owners interest in seaprate account
shares that a customer acquires in a seaprate account
underlying mutual fund shares
annuity units
accounting measure of annuity amount to be received by owner
once variable annuity contract is annuized, accumulation units converted to annuity unts determine annuity payments to be made
529 and max gift
1 time gift 5x normal limit. so 16kx5=80k
written complaints and customer accounts kept for how long
written- 4 years
customer accounts- 6 years
joint tennats with rights of survivorship
parties have undivided interest. survivor recieves assets
joint tennats in common
percentage ownership in account
transfer of assets
carrying firm has 1 business day to validate. must complete transfer in 3 days of validation
account record verification
sent to customer within 30 days of account opening and 36 months after
within 30 days of each account record update
REgulation SP
privacy notices, at opening and annually.
must be able to easily opt out of NPI non public personal information
BSA
bank secrecy act and patriot act- money laundering
options agreement
customer must sign no later than 15 days afte raccount opened. cannot do opening transactions until then
if conditions change, agreement must be ammended withint 15 days
levels of options contracts
- covered calls
- buy calls and puts
- spread positions
- naked
options prospectus
available upon request
options exercise limit
number of options that can be exercised during 5 buisness days, established by options clearing corporation OCC
wrap account
customer service wrapped into one account. annual fee.
change to U4 form
30 days with CRD
official statement
disclosure document for new municipal bond offering
no prospectus for municipal
tombstone
announcmenet of public offering of secuirities in financial newspapers
official notie of sale
advertising in bond buyer and newspaper to solicit competitive bids.
type of bond, dollar amount, secuirty backing, rreputation, good faith deposit
Uniform secuirites act USA
blue sky laws. state laws govern secuirities industry.
omnibus account-
broker dealer account to make trades for customers
fail to deliver
10 days
complaints must be reported
to finra within 15 days of each calendar quarter
UTMA vs UGMA
UTMA more secuirites gifted and trasnfer up to age 21
unsuitable for senior investors
variable annuities, equity index annuities, structured products, mortgaging a residence
discretionary account
POA needed in writing before trasding
broker has power and authority
customer must recieve confirmation statements
REgulation T
customer to broker dealer
customer signs margin agreement aka hypothecation, pledges secuirites as collateral
regulates extension of credit
Regulation U
Broker dealer rehypothecates secuirties to bank 140% of customers loan
banks loan money to broker at call loan rate
regulates credit between bank and broker dealer
Margin fails to deliver or pay
frozen for 90 days. fails to deliver in 10 days
to open options in margin
delivery of options disclosure document at or prior to account approval
options agreement sent- first trade officially opens account
signed options returned by customer in 15 days of approval
street name
name of broker dealer, nominal owner
portfolio margining
lower margin requirements for stock positions that are hedged by options
min equity 100k. must be approved for naked options
seaprate approval from registered options principal
maitenance margin vs initial margin
initial margin FRB Reg T
maiteiance- FINRA. closing position that day
mutal fund shares on margin
sold with prospectus, require 100%. after 30 days has loan value and can be margined
loan value of long options contracts
0, because they expire in the future
SAR
suspicious activity report. reiggered at least 5k funds or other assets within 30 days with FcEN
CTR
currency transaction report. triggered greater amounts than 10k
OFAC and SDN
office of foreign assets, specifically designated nations. accounts will be frozen and new accounts wont be opened
OCC
options clearing corporation
specifies contract: contract size strike price and expiration
max life
9 months, near expiration is less expensive
time and intrinsic value
intrinsic= amount an option is in the money
time/extrinsic value premium- intrinsic
otpions expiration
third friday of the month at 11:49 eastern
stop limit order vs stop order
limit- becomes order to sell at specified limit once triggered.
stop order- become market orders once triggered.
75-5-10 rule
1940
75% of assets invested in cash or secuirites
no more than 5% in any company or 10% ownership
supchapter M
IRS reg of investment companies and REITS
90% or more of net investment must be in related secuirties
investment advisor
manage funds within objective. management fee
custodian bank
safekeeps funds, clerical functions like transfer agen or paying agent
sponsor sets up investmen
sponsor
sponsor sets up investment objectives
BDC
invests in private companiesbusines. private equity investments development company
registered investment 1940, trades like other stock
distribute 90% of taxable net income
invests in privatley held start up businesses and financially troubled companies
to qualify 70% of assets msut be in small or troubled companies
conduit tax treatment 90% taxable income must be from dividends, interest and capital gains on investments
VC
venture capital fund. limited partnership only sold in private placements to wealthy accredited investors
open end vs closed end
offerings vs shares
prospectus
types of shares
charges
open- continuous primary offering/ closed- number of shares fixed
prospectus:open yes. closed- no prospectus afte IPO
shares- open: common/ closed- common, preferred, bonds
charges- 8.5% max sales/ closed- commissions
ETFs vs Index mutual fund
pricing
commisisons
margin
shorting
capital gains
pricing: ETF continuous/ mutual- forward pricing
commissions: ETF commission/ mutual none
margin: ETF yes/ mutual no
short: ETF yes/ mutual no
gains: ETF taxed when sold/ mutual- taxed annually
NAV
POP
SC%
sales charges
front end
back end CDSC
asset based- 12b-1 fees. annual fee
Mutual funds pricing
day closing price for computations
orders redeemed at days closing NAV adjusted by fees, slaes charge etc
letter of intent
investors agree to buy additional shares and is given reduced charge.
good for 13 months. backdated 90 days
UITS fixed vs nonfixed
fixed- benefits, dversity in one investment. no management fee. liquid. redeemable
nonfixed- trust purchases shares of underlying mutual fund. variable annuity. create fixed porfolio sell units of 1k, diersified. board of trustees. redeemable
cannot be sold with series 6
mutual, initial POP of closed end funds, UIT variable annuities
secondary markets
1- listed auction market. NYSE, AMEX, CBOE regional exchanges. NASDAQ
2-OTC negotiated market unlisted. OTCBB interdealer quotes, PINK otc
- market makers interactive . OTC global market 24 hrs
- ECN insutitional subscriberes
agent vs dealer
agent- broker, commission, matching orders
dealer- principal, markup, inventory, market maker
prime brokers
cleaning broker dealer
introducing broker dealer
prime brokers- hedge funds
cleaning broker dealer- holds funds and secuirities. process trades for own customers
introducing broker dealer- introduces accounts into firm, do not hold funds or secuirties.
market orders. limit and stop
market order- executed at next best price. fill guarantee, not price
limit order- executed at specific price or better. guarantees price
stop order-once elected becomes order. elected first by trade at through price.elected and executed at next best price
primary market
underwriters are market makers
issuer- prints and deliver stock certificates in a new issue
Term vs Serial vs Series
term- same time, same maturity. PRICE quotes. Corp + muni DOLLAR bonds 1/8, US gov bonds 1/32nd
serial- same time, different maturities, BASIS YIELD quote, BASIS points. money markets. muni bonds, corp equipment and trust certificates.
series- issued different dates, matures same time
Diamonds
OTQX
OTCQB
pink
QQQ
CBOT
NYSE
CQS
Diamonds
OTQX- developmeal
OTCQB- US and international
pink- spectulative
QQQ- ETFs from NASDAQ
CBOT- futures on CBOE
NYSE closes 9:30-4
CQS- 9am to 6::30 pm
floor broker
two dollar broker
introducing broker dealer
clearing agent
RCMM
DMM
super display book
floor broker- NYSE order on trading floor. agent only, do not trade for own account
two dollar broker- inependent handles overflow
introducing broker dealer-fully disclosed broker dealer. introduces busienss to carrying firm. cannot take custody
clearing agent- carrying firm. takes custody of secuirities
RCMM- registred competitive market maker. buys and sells own accoutns to add liquidity
DMM- specalist. stands at round tarding posts ready to trade. maintains liquidity. maintains bid and ask quotes
super display book- limit orders
nasdaq system
single book system
market maker- finra firm tha t buys and sells secuirities out of its own inventory
order tapes
tickets sent to exchange and stamped with order entry, order execution and cancellation
specialists report trades to tapes
NASDAQ- C tape
NYSE- A tape
AMEX- B tape
Systems
TRACE
OATS
ACT
CAT
ADF
OSS
TRACE- trade reporting and compliance engine
OATS- order audit trail system. syncrhonized activity
ACT- automated confirmation. reports to network C NASDAQ
CAT- consolidated audit trail system. electronic equity
ADF- alternate display facility where ECNs display quotes
OSS- CBOE automated options trading system. routed directly and bypass firms commnication posts. execution notices sent directly from trading post to brokerage firm
gray market and dark pool
gray market- quoting and trading OTC secuirities. smaller bankrupt. market is illiquid and not ransparent
companies dont report to SEC. are regulated by FINRA
Dark pool
Debt financing or utilizing debt leverage too much can lead to the inability to meet principal and interest payments on a company’s debt obligations.
Coupon rate
the interest rate the issuer has agreed to pay the investor for use of the funds loaned to the issuer.
soverign risk
Type of political risk, risk of default by a country on its debt instruments
tbonds vs tnotes
both priced as percentage of par.
interest paid semianually
tbills at discount to par with interest not paid until maturity.
proxies
if proxies are to be solicited, corporation must send out material to shareholders. SEC must review before its sent
two types of returns on investments
capital gains and income
dividends or interest- types of income
capital gains or loss
greatest influence on the money supply
FOMC federal open market committe.
FRB buys and sells gov secuirities in open market.
FOMC is board of gov, FRB and reserve bank presidents.
systemic vs nonsystemic risks
systemic risk- purchasing power or inflation risk
nonsystematic- capital risk, business risk, call risk. portfoio diversification
rules to portect investors during IPO
- must offer secuirities at POP
- insiders may not take advantage
- firms may not withold secuirities in public offering for their own benefit
MSCI-EAFE
foreign equities. euorpe ,australia, far east index. outside US and Canada.
to open a margin account
- credit agreement, hypothecation, risk disclsoure
whats excempt from blue sky
purchase sand sales that are unsolicited are exempt.
FINRA continuity plans
alteernate methods to communicate with employees, customers, regulators
revocble living trust
established before grantor dies, can change beneficiaries, can add or remove items from trust.
grantor subject to tax on income that remains in the trust
margin calls can be met
cash or fully paid for marginable secuirities (2x ammount)
financial risk
Debt financing or utilizing debt leverage too much can lead to the inability to meet principal and interest payments on a company’s debt obligations.
bond points vs basis point
1 bond point= $10= 1% of par
1 basis point= .10$, .01% of par. 100 basis = 1% $1 per 1k
conversion rate and conversion price
conversion rate= Par/ conversion price
conversion price= par/ conversion rate
parity price of stock and bond
parity price of stock= bond price/ conversion rate
parity price of bond= stock price x conversion rate
tax equivalent yield and tax free equivalent yield
tax yield= tax free (municipal) yield/ (1- Tax bracket%)
tax free yield= Corporate yield x (1-Tax bracket %)
eg municpal
7%/(100%-31%)= 7%/.69= 10%
net worth
assets- liabilities
net working capital
current assets- current liabilities
par vs coupon
par- face, principal, denomination. ammount issuer pays at maturity. interst based on par
coupon- annualized rate of interest (based on par) interest every 6 mo.
Ratings for secuirities
nominal yield and current yield
corporate debt
TRACE must be reported no later than 15 min post execution
settled in clearing house funds. through NSCC national secuirties clearing corp
US securities settle where
federal funds through FIIC fixed income clearing corp
taxation of corporate OID issues
OID issues zero coupon and commercial paper
discount taxable as interest income (phantom income)
discount is accreted
funded vs unfunded debt
funded- long term corp debt
unfunded- short term debt
commercial paper
corporate, promissary note/ prime paper. short term 270 days. insutitional investors
Ratings: p1,2,3, NP
sold at discount, matures at par (most money markets)
guaranteed bond
backed by party other than issuer. parent or subsidiary
takes on credit of issuer
income/ adjustment bond
pays interest with earnings. Bankrupt ccompanies. trade flat due to uncertainty of future payment
where do most bonds trade?
OTC not NYSE
Bankers acceptances
corporate money market. time drafts finance energy country imports and exports with third world countries
exempt 1933. sold without prospectus
CD’s
negotiable- jumbo 100k 1 year or less FDIC up to 250k.
Brokered- negotiable, higher rates
money market istrument!
money market
tbills, municipal promissory notes, anticipation notes, BA acceptances, CD’s, commercial paper
ARS
auction rate secuirities- long term bonds with short term market rates
successful auction with coupon reset. illiquid
traded on NYSE, NASDAQ, AMEX ,not CBOE
eurodollar
issued in bearer form outside US
not subject to US withholding taxes cause they’re offered outside US
ETNs
unsecured debt obligations issued by bank linked to market
based on performance, does not pay periodic interest.
trades like stock and can be redeemed
tax effiecient
VRDR
weekly renewable municipal note. set to market index
25k long term debt 20-30 years. reset to benchmark.
put option
ARS
long term bond with reset interest rate. reset with dutch auction, no put option
IDR/ IDB
industrial dvelopment revenue bond. private purpose non essential use. Alternative min tax
special assesment bonds
community improvments
special tax bonds
backed by taxes other than ad valorem. usually excise taxes
double barreled bonds
primary backing is revenue, ultimate backing is credit of municipal issuer
municipal taxes. one mill
.001
voter approval to raise debt limit
moral obligation bond
if revenues or taxes are insufficient, moral obligation of state to pay
bonds from puerto rico, etc
exempt from fed, state and local taxes
pre-refunded debt
backed with US gov and agency secuirties
safest bond choice offered- backed by collateral
short term municipal
promissary notes- 270 days
antiicpation notes 12 months
Tan, ran, etc
CLN constructive loan note- short to intermediate term for construction
Tender option vs tender offer
tender option- put
tender offer- non collable bonds. issue offer to bondholder to redeem at prem cash price.
refunding
replacement of existing bonds with new bonds. allow issuer to take advantage of interest rates.
advance refunding- called a next call date or remain until maturity
pre-refunding- call at next date
Revenue vs GO bonds
Revenue- trust indenture. only revenue pledged. protections- rate, issuance, coveneants, maitenance
GO- debt per capita, debt to assesed valueation, collection ratio.
Trend of assesed valution of property, ratio of overall debt per capita, record of tax collection
RTRS
real time trade reporting system. municipal reported
brokers broker
firm that trades for other firms to keep them anonymouse, acts as agent
help large institutions buy and sell large blocks of municipal bonds. They take no inventory positions, acting as agent only. Municipal broker’s brokers do not deal with the general public.
treasury notes, bills, bonds, TIPS, strips, savings bonds
notes- negotiable. interemdiate term 2-10 years. $100
bill- 12 mo or less. yield basis. discount, matures to face value. Auctioned weekly, 1 year monthly. primary gov dealers obligated to bid. conducted each Monday and Tuesday. Issue date Thursday. settlement thursday
treasury bonds- 32nds. mature in >10 years.
TIPS- inflation protection. principal adjusted upwards, rate is fixed. receive higher interest due to increased princiapl. protect against purchasing power risk
strips- pension funds, retirement accounts purchase. deep discount and held to maturity. little risk.
treasury reciept- no longer traded. all matured
savings bonds- non negotiable EE and I
floater bonds
variable rate bonds. interest rate paid to benchmark.
inflation, rises and holder gets higher interest
flow of funds
gross revenue pledge- bondholders first
net revenue-bond has claim after maiteiance
operations maitenance, sinking, debt, reserve, renewal, surplus
volatitlity with debt
discount and longer maturities more volatile
bonds with small premiums more volatile. Deep discounts more volatile
yield curve
when inverted, short term rates are higher than long term. invest in shor term tranches
whether ascending flat or inverted- long term always more volatile
widening- negative. gov bonds lower, corp yields higher
narrowing- positive.
If short term interest rates are expected to rise, then short-term fixed income security prices will fall, so the customer will want to sell these (establishing a short position).
If long term interest rates are expected to fall, then long-term fixed income security prices will rise, so the customer will want to buy these (establishing a long position).
common stock vs
preferred
common- quarterly
preferred- semi annually. higher than common and fixed. priority claim to assets and dividends, but after debt. 50% exclusion on dividends for corps
what is the parity price for the stock if the bond is trading at 1.5k CP= 40 and CR=23
What is the parity price for a convertible bond if the stock is strading at $43? CP=40, CR =25
rights vs warrants
rights- 30-45 days. premptive right. proportional ownersihp
warrants- 5 year expiration. issued without intrsincit value, time value
ADR
sponsored vs nonsponsored
american depository receipt. issued by foreign branch of american bank. registered with SEC
represent foreign stock. bank is registered owner.
sponsored- ADS american depostiory shares. eligibile to trade on exchange
non-sponsored- no participation from foreign issuer, trades OTC
who sets the ex date
finra
SIPC
500k secuirities, 250k cash
joint account gets max coverage 500k. Debit subtracted
cost of money
interest
restricted securities
acquired through some other means than registered public offering. like private placement. These may not be sold until they have been held for 6 months
business cycle stages
peak (prosperity), contraction (decline), trough, and expansion (recovery)
capital risk
the risk an investment depreciates and can only be sold at a loss
electronic delivery of documents must include
procedures to show delivery took place as intended
procedures to deliver info in paper form upon request
assurance of confidentiality
stop vs stop limit
stop- next available price after the market price falls or rises to x
stop limit- next price below or above x after market hits x
4th market
a market for instutitional investors in which large blocks of stock, listed and unlisted trade in transaction unassisted by broker dealers
during a cold call, rep must disclose
callers name, address at which calller can be contacted, name of the member broker dealer firm
IRA distrubtions taxed
ordinary income tax rates on full amount of distribution
NAV contributers
if investors redeem shares, the assets in the fund goes down but number of shares decreases proportionally so NAV would remain unchanged.
if investors purchase shares the assets and the outstanding share increase proportionally, so NAV remains unchanged.
other things that have assets decrease, NAV would decrease. like capital gains, liabilities, and dividends distrubition
U5 form filled with central registration depository within how many days of firing
30 days
earnings per share EPS
company earnings by number of outstanding shares. if earnings remain the same while shares increase, EPS decreases.
request of Statement of additional information SAI must be satisfied within
3 buinsses days free of charge. mutual funds
limited partner
limited liability of loss of money invested, having income and expenses flow directly, own interest in investment company managed by others
requirements of notifications for coporations
notify customer of payment date, title of secuirty, declaration date
U4 includes
criminal charges, aliases, 5 year residency and 10 year employment
underwriting agent vs principal
agent (best efforts) all or none, min max- fixing a min n amount to go forward
principal (firm)- stand by rights offerings
GDP vs GNP
gross domestic product- output within a nations borders regardless of ownership
gross national product- measure of economic output of a countrys citizens and companies
regulations and revokign registration in state
state administrator take actions against broker dealer.
Federal reserve and SEC are national regulatosr
repurchase agreement
initial purchase followed by a sale at a higher price
regulation M
SEC rules covering manipulative practices by market makers in connection with “add-on share” offerings, before, during and after, the 20-day cooling off period while the issue is being registered with the SEC.
Syndicate members that are not market makers are permitted to buy Tier 1 securities anytime prior to the effective date
III Syndicate members that are not market makers are restricted from buying Tier 3 securities for the 5 business day window of time prior to the effective date
regulation ATS
requriing registration of ECNs as alternate trading systems by finra
stabilizing bids
. Stabilizing bids can only be entered at or below the public offering price, never above. If the bid were allowed to be placed above the public offering price, it would make the issue instantly “hot” and this is prohibited.
diamonds, DIA
exchange traded fund. Dow jones industrial average index. 30 stocks
fed funds vs clearing house funds
clearing house- regular way settlement for OTC, next business day for options
fed funds- gov secuirities
durable vs nondurable power of attorney
nondurable- ceases upon mental incapasitation
types of bids/ quotes
firm quote- OTC dealer cannot change or will be backing away
nominal- no quote. approximate price.
subject quote-approx price subject to change or confirmation
workable- a bid price at which a dealer is likely to buy bonds from dealer who wishes to sell.
workout quote- price range the dealer will use to find a firm quote
chinese wall
seapration of investment banking from trading and research units
research should not be influenced by pending investment banking deals - e.g., research could “help” the deal by putting out a “buy” recommendation on that stock. In addition, research personnel might buy the stock themselves, which can be viewed as trading on “inside information.”
NYSE rules for bids
Under NYSE trading rules, bids and offers must be for the minimum 100 share size trading unit;
the highest bid and lowest offer have priority (the same as NASDAQ’s “inside market” - now renamed the NBBO - National Best Bid and Offer);
and all bids and offers must be publicly announced (no secret bids and offers, or side deals allowed).
If 2 equivalent price bids (or offers) are made at the same time, the larger order has precedence and will be filled first.
bank qualified municipal issue
a municipal G.O. issue of $10,000,000 or less which
, if purchased only by a bank investor, allows the bank to deduct 80% of the interest it pays on the deposits used to purchase the bonds.
The interest income received from the bonds is tax free to the bank.
public purpose
good delivery
To be a good delivery, certificates must be in round multiples of 100 shares on one certificate or must be delivered in certificates that add up to 100 share units. Certificates of 40 shares each are not good because 40 + 40 = 80; 80 + 40 = 120. A round lot of 100 shares cannot be created from these units. The other choices either allow for the creation of 100 share units; or are in multiples of 100 on 1 certificate.
value line
dow jones
standard and poors
major market
value line- 1700 stocks NYSE< AMEX, NASDAQ
dow jones- NYSE 30 stocks
standard and poors- 500 NYSE
major market- 20 NYSE
annuity unit
vs accumulation unit
annuity unit- accounting measure upon which the amount of pay out is determined
accumulation unit- the legal name for the “shares” that a customer acquires in the separate account when purchasing a variable annuity, since this is a “unit” trust form of investment company. The dividends and capital gains received during the investment period are reinvested in the separate account, purchasing additional accumulation units. (
early IRA withdrawl exceptions
excess medical expenses
disability
higher education
birth of first child expenses
which corp distributions are taxable to recepient
cash and product
MFP contribution
joint if both sign up to $500
variable rate preferred
divident rate tied to market. minimal market risk. minimal liquiidty risk. Preferred shares are listed and trade, so the shares can be sold readily at low cost.
bond resolution
he contract between the issuer and the bondholder.
Any restrictive covenants to which the issuer must adhere
II Any call provisions providing for redemption prior to maturity as specified in the contract
III The credit rating assigned to the issue by a nationally recognized ratings agency
IV The compensation received by the underwriters for selling the issue to the public
registered options principal vs branch office manager
The designated Registered Options Principal resides in the main office of the firm and is responsible for creating and enforcing procedures for compliance with the rules of the O.C.C. and options exchanges. This person is also responsible for approving all options advertising and sales literature.
Each branch must have a BOM - Branch Office Manager. This person is responsible for approving options accounts, options orders, options correspondence sent to 25 or fewer existing or prospective clients and for resolving options complaints.
trading of GOV secuirties
performed by primary and secondary dealers, federal reserve. market is active.
does not take place on NYSE, is OTC
open ended vs close ended fund purchase
open- NAV plus sales charge
closed- market price plus commission
CMO risks
no default risk- backed by gov.
extension, prepayment and interest rate risks yes
negotiated vs nonnegotiated offerings and spread
MSRB rules for new issues, underwriter must disclose psread in negotiated udnerwritings
custodial account tax
interest income in custodial account reported on tax return of minor
accelerated depreciation
increase in early eyars decrease in later
Accelerated depreciation deductions, when compared to straight-line depreciation deductions, are “front loaded.” The depreciation deduction is higher in earlier years; but the deduction is lower in later years (as compared to straight line depreciation). Because there are higher deductions in the earlier years, this will increase reported expenses in those years; while the lower deductions in later years will decrease reported expenses for those years
net tangible asset
book value
all assets minus intagibles and liabilities.
measure of liquidation value of the company
eurodollar
domestic corp
foreign corp
foreign gov
NOT US gov
how soon can new issues be margined
30 days after issuance
BAN
TAN
RAN
TRAN
BAN- bond atniticpation- pull fooward funds from later sale. obtain short term funds in anticipation of long term debt financing
TAN- pull forward fudns that will be collected as taxes in later months.
RAN- pull forward revenues expected be rreceived by municipality in coming months.
TRAN- both rev and tax
cash management bill
sold at auction as needed for unexpected cash shortfalls.
shortest term as short as 5 days. sold $100 min, discount to par at weekly auction like treasury bills
right of rejection
municipal dealer refuses to accept bonds tendered to that firm by another municipal secuirities dealer. “good form”
buyer has failed to detect irregularity but finds later- buyer may use right of reclamation to correct a problem
credit vs debit spreads
credit- short a call. profitable in a
long a put- deibt spread
cabinet trades
cboe- accomodation liquidations. close out worthless long positions, close out worthless shot positions
foreign currency vs foreign currency options trades settle
currency- spot and forward 1 or 2 buisness day settlemet/ mutually agreed upon date
options- cash and regular way/ same or next business day
equity income fund
invests in stocks and pay dividends that have growth potential
depression vs recession
recession- 2 quarters of GDP decline
depression- 6 quarterse
fundamental vs technical analysyst
fundamental- earnings, balance sheet liquidity, management
technical- chart trading volumes, advance declines,etc
frb
determines which OTC secuirities are marginable
options account
opened branch manager initially, subsequent approval by ROP
obtain information, obtain approval, enter intiial order, obtain signed options agreement
fifo vs lifo
FIFO- used when customer does not chooes method. lowest cost basis being redeemed first. greater taxable gain
bond interest payment dates
dated date to first payment date.
trace
corporate bonds in OTC secondary market.both sides have to report. reporting system not execution
Notice of sale
provides syndicates with information on new primary market issues
SLGS
State and Local Government Series (SLGS) Securities are purchased by municipal issuers, which are subject to IRS yield restrictions when they invest the proceeds of a pre-refunding. The monies placed in escrow are invested in SLGS, which are government securities whose interest rates are arranged to comply with IRS restrictions.
dated date
trade date
settlement date
record date
dated date- day bonds start to accrue interest
trade date= agree to terms
settlement date- ownership trades. settles t+2 or 1
record date- before ex date. look to see owner for divident
soverign debt
secuirities issued by a government. treasury are example
Class A, B, C
Class A- long term. High front end. no back end (CDSC), low or no 12b-1 fee
Class B- 5-7 year horizon.CDXC declines each year. moderate 12b-1 fee.
Class c- short term. no front end load, moderate back end load. high 12b-1 fees
