Series 7 Flashcards
1
Q
US Govt Agency securities are sold through —
A
A selling group appointed by the Agency
2
Q
US Govt agency securities are sold @
A
PAR
3
Q
The Bond Buyer Index contains
A
20 GO bonds with 20 years to maturities rated at A or better
4
Q
The VISIBLE SUPPLY includes:
A
General Obligation Bonds, revenue bonds, industrial revenue bonds (includes all competitive and negotiated LONG TERM bond sales over the next 30 days)
5
Q
Most of the Registration Statement filed with the SEC is information that is found in the —
A
PRELIMINARY PROSPECTUS
6
Q
Long margin account INITIAL margin req. is what and set by who
A
50% set by the FRB (Reg T)
7
Q
Long margin account MINIMUM maintenance requirement is what and is set by who
A
25% set by FINRA
8
Q
______ and _____ can be performed in a cash account
A
Long sale of a security and Sale of a Covered Call
9
Q
The (4) Critical pieces of information to be obtained before account can be opened are:
A
Name, Mailing Address, SSN, birthdate (to be independently verified within reasonable time before or after account opening)
10
Q
Whose signatures are required on a new account from when a customer is opening a cash account?
A
Registered Rep and Manager/Principal
11
Q
If customer fails to meet Reg T call within specified max 5 business day limit, what can be done?
A
- BD can request an extension for payment from the SRO 2. BD can sell securities from the account in an amount to satisfy the call
12
Q
Margin is computed on:
A
NET purchases of the day
13
Q
INITIAL EQUITY to open a margin account is ?
A
$2000
14
Q
“Not Held” refers to an order that___
A
gives discretion to floor trader as to price and time of execution
15
Q
(3) types of corporate underwriting are:
A
- FIRM 2. STAND BY 3. ALL OR NONE
16
Q
Underwriter in corporate bond offering selects syndicate based on:
A
- geographic location 2. track record 3. financial capability 4. historic relationship
17
Q
Bond Buyer 11 Bond Index contains___
A
11 General Obligation Bonds rated “AA” or better
18
Q
The Parity Formula for common stock/Convertible Bond is ____
A
Current Price of Bond/#of Converted Shares
19
Q
Converted Shares =
A
Par/Conversion Price
20
Q
A bond Resolution is the contract between who?
A
Issuer and Bondholder
21
Q
2 Things found in a municipal bond resolution are?
A
- Restrictive covenants to which the issuer must adhere 2. Any call provisions providing for redemption prior to maturity
22
Q
Mill Rate is multiplied by what?
A
the total assessed value of the property
23
Q
Commercial paper matures when and at what price?
A
A preset date and a preset price
24
Q
Commercial paper is quoted on a
A
YIELD BASIS
25
Definition of commercial paper is --
unsecured promissory note --short term money market instrument
26
What Government issues are subject to state and local taxes as well as federal?
GNMA, FNMA, FHLMC
27
The feasibility study on a new municipal revenue offering is performed by who?
An independent consultant
28
Blue chip corporation experiencing short term cash flow shortage could use ___ to improve cash flow
commercial paper (short term money market instrument)
29
In the sale of a long position in a RESTRICTED long margin account, 50% of all the proceeds of the sale are credited to where?
the SMA (to be borrowed from) the other 50% is required to be used to reduce debit
30
What is the industry minimum for opening a short margin account?
$2000 even though reg T requires just 50% initial margin, if below $2000, must still deposit $2000 in account
31
For a PREMIUM BOND, Effective Yield is _____ than COUPON
Effective Yield is LESS THAN Coupon for a PREMIUM BOND
32
For a DISCOUNT BOND, Effective Yield is ____ than COUPON
Effective yield is MORE THAN Coupn for a DISCOUNT BOND
33
____ and ____ are NOT margin able and must be paid in FULL
Mutual fund shares and option purchases
34
Leveraged ETF minimum margins are calculated by:
multiplying leverage % by FINRA minimum margin
35
Customer account records to be kept by the RR under FINRA rule include:
Record by customer namer account # of each security position AND Record of the aggregate position maintained among all customers in each security
36
What is the formula to find the market value @ which a short margin account is at the 30% minimum maintenance level?
Credit Balance/1.3
37
If a customer has excess equity in a Long Margin Account, they can :
1. borrow CASH in amount NO GREATER than excess equity (SMA) 2. BUY Marginable Securities without depositing cash in amount NO GREATER than TWICE the excess equity (SMA)
38
What is the formula to find market value at which a LONG MARGIN account is at the 25% minimum maintenance level?
Debit Balance/.75
39
If a customer sells securities and fails to deliver on settlement date, the position must be bought in how many business days later?
10! (they have 10 days to be delivered by customer after the 3 days to settlement have passed, or they are bought back by the brokerage firm)
40
Requirement fro BDs to disclose privacy policies to customers and permit customers to "opt out" of having info disclosed to 3rd parties (SEC) Regulation is:
Regulation SP (statement of PRivacy)
41
Under FINRA - the initial approval of new accounts, in writing, is performed by who?
General Principal (#24)
42
What are (4) ways a corporation can redeem its debt prior to maturity?
1. purchase outstanding debt securities in the open market 2. make formal tender offer at price determined by the issuer 3. call outstanding securities at pre established dates and prices 4. can force conversion of convertible bonds that have appreciated in the market by calling them
43
In a repurchase agreement , who is the lender who is the seller
Repurchase agreement -- Lender = public customer ----- Seller = Govt dealer
44
Percentage of Par quote is also known as
dollar quote (corporate and govt bonds and muni TERM bonds)
45
On what basis are municipal SERIAL BONDS quoted
YIELD BASIS
46
A Port Authority issue is a
self supporting municipal REVENUE bond (CANNOT be OVERLAPPING debt)
47
Wer are corporate bonds traded?
NYSE (few) and OTC
48
A municipality can decease debt with:
1. US Govt Securities 2. US Govt Agency securities 3. Bank CDs (rarely)
49
Private purpose revenue bond income is subject to what taxes?
State and local and AMT (federal tax)
50
What Govt issues have a FIXED COUPON RATE?
TNotes TBonds (both are issued at PAR)
51
What Govt issues are zero coupon OIDs and have no stated interest rate?
TBills and STRIPS
52
The Revenue Fund consists of:
All gross revenues from the facility
53
Eurodollar bonds are purchased by who?
Foreigners (No US income tax)
54
Who insures CDs
FDIC up to 250k if in CUSTOMERS NAME
55
Treasury Note trades settle through:
Fed Funds
56
A guaranteed corporate bond is guaranteed by:
another corporation
57
Eurodollar bonds cannot be issued by who:
US Government
58
Who issues Eurodollar bonds?
1. US Corporation 2. US State and Local municipalities 3. Foreign corporations 4. Foreign governments
59
Where are Eurodollar bonds issued
in foreign countries (but payable in US dollarS)
60
Minimum denomination for a mortgage backed pass through certificate is:
$25000 (to discourage small investors)
61
Flow of funds for municipal Revenue offerings are set forth in the ---
TRUST INDENTURE
62
Which municipal bonds are subject to Federal income tax?
"Non essential use" private Purpose Municipal issues (via AMT) (convention center)
63
TAC has a higher degree of ____ than PAC
extension risk (same level or prepayment risk)
64
TAC bonds protects against what?
prepayment risk (designed to pay target amount of principal each month)
65
PACs and TACs provide ___ against prepayments during periods of falling interest rates
Call protection
66
The (3) measures for GO bond analysis (ratios) are:
1. Debt/Assessed valuation of property 2. debt/population 3. taxes collected/taxes assessed
67
(3) Municipal Trading Market-Secondary Market joint account form for what reasons?
1. purchased a block of bonds offered through another municipal trading firm 2. purchase a blouse of bonds offered by a bank 3. purchase a block of bonds offered AON in Bloomberg
68
Is the trading market of govt and agency bonds active or inactive?
Active (deepest and most traded in the world) - VERY narrow spreads
69
how are Govt and Agency Bonds quoted?
1/32nds (Dollar bonds -- % of par)
70
Basis =
yield to maturity
71
Tax of Treasury receipts (STRIPS) are do when?
annually (even though no money actually received)
72
A tender option allows what?
The bondholder to "put" the bond back to the issuer, receiving par for each bond and therefore is protected from market risk in a rising interest rate environment
73
Mandatory redemption provisions can only be met by:
depositing required funds to the sinking fund
74
As interest rates fall, Discount bonds _____ than will similar premium bonds
appreciate more rapidly
75
Bond trading at a discount can indicate (2 things):
1. the issuer credit rating has deteriorated (forcing prices down and b/c more risky-- yields go up) Discount bonds -- Yield>Coupon
2. Market interest rates have risen
76
Discount Bond prices are more ____ to interest rate movements than premium bonds
Discount bond prices are MORE SENSITIVE to interest rate movements
77
Which bonds are more LIKELY to be called?
PREMIUM bonds
78
Treasury Note interest accrues on what basis?
Actual day month, actual day year (All Govt bonds)
79
Overlapping debt is structured as ____ and backed by ____
Structured as SERIAL bonds and backed by Full Faith and Credit of the ISSUER
80
Overlapping debt is apportioned based on?
relative assessed valuations (shared by different political subdivisions)
81
only ____ debt can be overlapping --
G.O.
82
ETNS offer investors these (3) benefits:
1. Lack of liquidity risk 2. tax efficiency 3. access to returns of foreign investments
83
An ETN is:
a structured product (based on index) offered by banks that gives return tied to a benchmark index (debt of the bank and backed by FFC of the bank)
84
ETNs make NO___?
interest or dividend payments
85
Essential difference between ARS (auction rate securities) and VRDO is:
embedded put option in VRDO
86
Interest accrues of municipals bonds on what basis?
30/360 (up to but not including settlement)
87
Conversion Price =
Par value of bond/conversion ratio
88
Brokered CDs may have initial interest rate higher than ______
higher than market rate of interest, but that rate will be lowered after the CD is held for a stated time period (step up-step down)
89
Brokered CDs in secondary market are very ____
LIMITED (b/c most are held to maturity)
90
As the market price of a bond moves, the tax equivalent yield ---
changes as well
91
Corporate bond denominations have ____ effect on MARKETABILITY
NONE
92
Reports of CORPORATE BOND (and non asset backed agency bonds) trades are made to:
TRACE w/in 15 minutes of execution -- FINRA OTC
93
Reports of MUNICIPAL BOND trades are made to:
RTRS
94
In Municipal tradng market, what is the difference between PRINCIPAL and AGENT?
PRincipal - member firm acts as DEALER/Market maker (charges a markup/markdown) -- sells from inventory
Agent - member firm acts as BROKER/agent (charges commission)
*capacity in which the BD acted must be included on the confirmation
95
A control relationship is defined by MSRB as?
any relationship wherein a person at the municipal securities firm is in a position to influence a municipal issuer whose securities are being traded by that firm (MUST DISCLOSE)
96
What is a "When, As, If Issued" transaction?
A securities transaction/trade where actual settlement date is not known until the new issue of the municipal securities is printed and the offering has been closed between the syndicate and the issuer
97
A new issue municipal bond investor seeks information about an issuers financial condition would examine what?
The Official Statement (if available - may request)
98
When is a preliminary official statement delivered to a customer?
if the final official statement is not ready at the time of settlement
99
Upon customer request -- a dealer in a competitive muni syndicate must disclose:
1. order priory provisions 2. initial offering price of each maturity (required to be disclosed)
100
What is the usual priority of municipal syndicate fill:
Presale, Group Sale (Syndicate), Designated, Member Takedown (Member)
101
Three things MSRB rules consider to be advertising:
Form Letters, Circulars, Abstracts or summaries of Officail Statment
102
Municipal advertising copies must be retained by the member for how long?
4 years
103
Who approved municipal securities advertising?
either General Principal or Municipal Securities Principal (#53)
104
When it comes to stated rates on muni securities advertisement, the advertisement must state what?
if the rate mentioned is coupon or yield
105
What is the anti-reciprocal" rule --
prohibits mutual funds from compensating brokerage firms for their sales of mutual fund shares by sending their portfolio trades through that firm
106
Is there a specified time period Official Statement must be kept?
No! (customer complaints, account statements, and trade comparisons must be kept)
107
MSRB rules are enforced by:
FRB, FINRA, OCC (all regulatory bodies over banks)
108
Broker Dealer enforcement agencies =
SEC and FINRA
109
For municipal new issues what is the Disclosure?
Final official Statement - NOT required since muni are exempt
Used by UWs to perform Due Diligence on the issue and sell to potential customers
110
Municipal complaints (MSRB) are handled ins hat way?
handled or approved by the municipal securities principal (#53) -- must be settled
111
Municipal advertisements must be approved by who and kept for how long?
Municipal Securities Principal (#53) or General Securities Principal (#24)
Kept for 4 years
112
What is EMMA?
Electronic Municipal Market Access; MSRB Website -- gives muni investors acces to muni disclosure documents and muni price reporting at no charge
113
MSRB regulates>
Muni bank dealers and Muni Brokers
114
Registered Broker dealers are regulated by?
FINRA and SEC
115
Banks NOT members of a Self Regulatory Organization that trade municipal securities are regulated by who?
FDIC, OCC, FRB>
116
During 90 day apprenticeship period - new municipal brokers are prohibited from what?
CANNOT contact/SOLICIT customers or effecting trades for customers (but they CAN trade with other brokers, give quotes, and perform clerical functions)
CANNOT earn commission
117
Municipal PRINCIPAL must review and approve what?
Each new account, each municipal transition, each customer complaint, approve each mailing piece to be sent to solicit business
PRINCIPAL does NOT approved official statement
118
Who prepares the Municipal Official Statement?
the Bond Counsel
119
MSRB rules -- confirmation disclosure for bonds sold @ PAR does NOT have to include:
yield at which the transaction was effected and resulting dollar price ( bc will not differ from stated rate of interest since bonds were traded at par)
**Has to be included if issued at a premium or discount)
120
Enforcement authorities of the OTC market include:
FINRA and SEC
121
Enforment of regulations regarding trading of LISTED securities in the THIRD MARKET are performed by?
FINRA
122
For registered Rep to take a second job -- requires approval of who?
BRanch Manager under FINRA rules (need written approval)
123
Form element component of CE requirement for RR at a member firm is:
Administered by: FINRA member employer compliance department
| Must be completed ANNUALLY
124
SA's- Assistant Reps - Order Processor may perform which functions?
Accept UNSOLICITED orders and take new account information (Series 11)
125
What services are considered to be "clerical" and allow a BD to charge the customer for such services? (FINRA)
Collection of Dividends, safekeeping of securities, handling transfer and reregister of securities, appraisals of securities in customer portfolio
126
Fully paid customer securities cannot:
1. be commingled with customer margin securities 2. cannot be commingled with firm positions 3. cannot be REHYPOTHECATED to a bank
127
Is exchanging customer margin securities with other collateral to secure a debt balance a violation of FINRA
NO!
128
Rule 5130 (FINRA) prohibits RRs from purchasing new issue of common stock until when?
It is sold in the secondary market, even an investment club that the RR is greater than 10% participant in -- is restricted
129
What is FRONT Running?
registered rep buys stock in advance of placing a large buy order for a customer. RR is hoping to make a profit from a rise in the stocks price due to the influence of the large purchase
130
What is FREE RIDING?
customer buys securities and then sells the same securities without the intent to pay for the purchase -- any profit on the trades belongs to the customer since it is the customers account (BDs don't allow this)
131
Post use review and approval refers to what? (FINRA)
emails sent by a registered rep to customers; rule used if member firm has an electronic communications compliance program
132
Who must approved research reports?
the member firm supervisory analyst (FINRA rule) --- reports of that member firm's research, and 3rd part research to be used with potential clients
133
Research analysts putting out a Buy recommendation on a security are prohibited from buying or selling that security during --
30 days prior to research report recommendation
| 5 days after recommendation
134
In an IPO, member who acted as manager or co manager CANNOT issue research report on that company within how many days of the effective date?
40 CALENDAR days following the effective date
135
Under SEC rules, rep would be considered to be delivery RESEARCH REPORT to customer is communication:
1. analyzes securities and provides basis upon which to make an INVESTMENT DECISION
2. is distributed to 15 or more clients
(written or verbal - can be seminar)
136
Regulation AC requires research analysis at member firms to:
1. give written certification on EACH published research report
2. give blanket certification to all APPEARANCES made each QUARTER
137
Mutual fund advertising CANNOT show:
projected performance
138
to make a Public offering of a Direct Participation Program (DPP) issue must:
1. be registered with SEC (they are "non-exempt" offers under SA 1933)
2. Regulated under FINRA
139
Fidelity bonds are maintained by brokerage firms to protect against loss due to:
1. embezzlement by employees 2. securities loss 3. employee theft
140
FINRA rule, disputes between RR and BROKERAGE FIRM are:
1. handled by binding arbitration
| 2. NON APPEALABLE
141
Who is permitted to be included in arbitration panels?
1. persons affiliated with member firms 2. disinterested person w/ no industry affiliation 3. attorneys that are members of the bar
* *key is to be DISinterested
142
Disciplinary actions taken by FINRA include:
Code of Procedure:
| Censure, Suspension, Expulsion, Fines, take away securities licenses (termination of employment)
143
Investment company securities that are REDEEMABLE
1. open end fund shares
2. Fixed Unit Investment Trust
3. Participating Unit Investment Trust (variable annuity)
144
Initial public offering are sold for the first time in the:
PRIMARY MARKET
145
Futures contracts trade on the:
CBOT - Chicago Board of Trade (no a securities exchange -- it is a futures exchange)
NYMEX - NY Mercantile Exchange
CME - Chicago Mercantile Exchange
146
An efficient trading market is one with:
small Bid/Ask spread and high trading volumes
147
the OTC market (OTCBB/Pink Sheets) is a:
Negotiated Market
148
Stocks listed on the NYSE can also be listed and traded on:
```
the Chicago (Midwest) Stock Exchange
Boston Stock Exchange
Any Regional Exchange
```
149
Individuals who make a secondary market in corportate bonds include:
market makers
traders
dealers (same as market makers)
150
Retail member firms that route order to maker makers in return for compensation are permitted to do so subject to:
Best execution requirements (but must disclose the practice on customer confirmations)
SEC requires execution must occur at "best market"
151
Regulation NMS Rule 605 covers:
quality of trade executions by exchanges -- monthly report
152
Regulation NMA Rule 606 covers:
broker dealers and how they route their orders to exchanged for executions (flow through)
153
who trades on the NYSE floor?
1. Specialists (DMM)
2. Floor Broker (agent for retail member firms
3. Two Dollar Brokers (execute order for retail member forms when floor brokers are too busy)
154
If a Day Order is not filled that is on the Specialist/DMM Books the order is:
canceled by the Specialist/DMM
155
Who trades securities OTC?
Market makers
156
Who trades on stock exchanges?
Two dollar Broker and Speciality/DMM
157
Companies that do not meet NASDAQ listing standards, but which are current in their SEC reports are quoted where?
OTCBB or Pink Sheets OTC
158
another name for the "inside market" is:
NBBP - National Best Bid & Offer (highest bid/lowest Ask)
159
(NASDAQ) When an RR sells a customer a security that is not offered through that firm, this is called --
Selling Away (PROHIBITED)
160
A market order where a trader uses his or her best judgment to decide when to execute to get the best price is called:
Market Not Held order
161
the system that compares trades of NASDAQ issues and reports the trades to Network C Tape is called --
ACT (through TRF) - takes details of completed trades and reports to the NEt. C (NASDAQ) tape, to the contra-party to the trade for comparison and to the clearing corporation for settlement
162
These (2) trades are reported through ACTS Trade Reporting Facilities:
1. NASDAQ market center trade of NASDAW listed stock
| 2. Trade of any NYSE listed issue in the THIRD MARKET
163
What is the NYSE TRF?
reports Third Market trades of the NYSE listed issues to the NYSE Network A Tape. the NYSE feeds the trades that take place on the its trading floor to this tape on its own
164
Trades of NASDAQ securities executed on an unlinked ECN are reported by:
TRACS - Trade Reporting & Comparison Service
165
Dark Pools are:
REGULATED sources of UNDISPLAYED liquidity
166
Stocks too small for NASDAQ are founds where?
OTCBB (FINRA run) and Pink Sheets (Privately run)
167
Last sale reports NOT AVAILABLE for trades of
EUROBONDS
168
A nominal Quotation given by an OTC dealer represents an:
approximate market value (with no bid or offer)
| More of a "guess"
169
WORKOUT QUOTE =
approximate price -- the final price must be "worked out"
170
Dealers earn _____
mark up or mark down
| Principal transaction/market maker
171
BW stands for:
Bids Wanted
**If a BW is placed in Bloomberg, the DEALER must intend to SELL THE BONDS
172
A "proceeds transaction" involves:
customer directs that firm to sell a position owned by the customers and uses the proceeds to buy another position
173
the definition of Arbitrage =
buying and selling short the same security in different markets to lock in a price differential
174
Who helps structure new securities offerings?
investment bankers
175
Underwiting selling groups act as:
agent for the syndicate -- selling the new issue but take no liability for any unsold portion of the new issue
176
What is Found of a TOMBSTONE announcement?
1. Gross proceeds of a new issue to the issuer
2. Syndicate members names
3. Name of the Underwriters
4. aggregate offering price
177
What is a BREAKUP>
govt ordered splitting up of a company; usually as a result of company engaging in monopolistic practices
178
What is a Leveraged Buyout?
Issuance of junk bonds or receiving financing from a commercial bank with the proceeds used to make a tender offer for a publicly held company (usually when in need of help)
179
How long after a New issue is effective before it can be listed in the secondary market?
immediately as of the effective date
| however, they are not eligible for margin for 30 days
180
Short seller prohibited from covering short sales with offered securities purchased from an underwriter participating in the offering if the SHORT SALE occurred how may days prior to the pricing of the offered securities?
5
181
What brokerage firm unites would need to be separated un the "Chinese Wall" requirements?
SARBANES OXLEY ACT 2002
US equities TRADING DEST separated from US INVESTMENT BANKING unity
US equities TRADING DESK separated from the firms US RESEARCH unit
182
According to SA 1034, what are SHORT SWING profits?
profits w/in 6 mo time frame that officers derive from trading that companys stock --> company's stock must be repaid to the company
183
Under Penny Stock Rule (1934) - who is considered to be an "established customer"
a customer who has had cash or securities in custody of the firm for at least 1 year or who has already purchased 3 or more "penny" stocks through that B/D
If an established customer --- suitability not required under the Penny Stock Rule
184
What does the Regulation SHO require (1934)?
Reg SHO requires that before any equity security (either listed or unlisted) can be sold short, the member firm must affirmatively determine tha the security can be bored and delivered on settlement ("locate" requirement)
185
Who does the Trust Indenture Act of 1939 protect?
corportate bondholders from bing taken advantage of by the issuing corporations
186
Investment advisor must register with the SEC if:
adviser has $100 million or more of assets under management (if not @ that threshold, must only register in the State and not with the SEC)
187
What the (3) exemptions provided for cold calls to individuals that are on the NAtional Do Not Call list?
1. Establish Business Relationship
2. Prior express written consent (if so, 8AM-9PM rule does not apply)
3. Personal Relationship with the associated person (if this person is on the firms Do Not Call list -- they could be solicited)
188
Who maintain the Do Not Call list?
Member firm (FINRA requirement)
FTC (Federal Trade Commission) --
189
Blue Sky Laws apply to:
Registration of corporate securities (exempt or nonexempt --- if exempt-- the securities have to be registered, but the BD/RR do not)
* If exempt from federal law, exempt from blue sky law (Govt, Muni, State chartered bank issues)
190
BRokers Brokers can only act in what capacity?
AGENCY trades -- professional trading firms
191
MSRB customer complaints must be kept for:
6 years
Customer com pain with their resolutions kept on file by the muni principal
*before complaint is resolved, must deliver copy of the Investor Brochure to the customer
192
Who handles Municipal customer compaints?
```
Municipal Principal (#53)
*No requirement o notify MSRB of complain bc they do not enforce their own rules)
```
193
What factors does Fair Market Value take into consideration?
1. Firms overall inventory position
2. firms inventory position in that security
3. firms anticipation of the direction of movement of the market for the securities
4. firms knowledge of facts about the issuer (knowledge of security being called, or issuer announcing default)
194
FINRA Code of Procedure =
District Hearing Panel
1st Appeal: National Adjudicatroy Council
2nd Appeal: SEC
Final Appeal: Federal Court
195
What items MUST be accompanied by a PROSPECTUS?
1. Sales Literature 2. Research Report 3. fund Annual report
196
Under FINRA rule, what is considered Correspondence?
provided to 25 or fewer existing or prospective clients (written or verbal)
* Written copy of speech kept for 3 years
* Must be approved by Compliance Officer or Principal
197
Under FINRA rule, what is considered Retail Communication?
provided to over 25 existing or prospective clients
- Advertising (seen by general public)
- SAles literature (research reports, market letters, pw protected websites and seminars)
* Must be approved by Principal prior to use
198
The Regulatory Element of CE must be completed when:
2nd anniversary of license and every 3rd year thereafter with computer training experience
*if fail to complete 120 days after notification -- must cease performing functions of RR
199
Sales charge and Commisisons rules breakdown
FINRA 5% commissions & mark ups (guideline not rule)
- applies to ALL exchanges and OTC transaction (Agency trades, principal trades, diskless trades)
81/2% of the POP - Mututal Funds
10%Rule - Limited Partnerships
200
In order to sell a wrap account, the RR must be licensed:
as an investment adviser representative by the state (Series 65 or 63)
201
Corporate Bonds settle:
3 Business days after trade date
202
What is the Breakdown of Investment Grade and Speculative Grade ?
AAA, AA, A, BBB
203
The Municipal Primary Market Publication is called:
The Bond Buyer
204
Corporate Bond interest accrues:
30/360 up to but not including settlement
205
PREMIUM BOND YIELD to MATURITY formula is:
(annual interest-Annual capital loss)/
| [(Bond Cost + Redemption Price)/2]
206
CMOs are backed by:
mortgage pass through certificates that are held in TRUST
207
CMOs are issued by:
BROKER DEALERS
The underlying Pass through certificates of a CMO were issued by: FNMA, GNMA, FHLMC (AAA rating on Moody/Fitch and AA on S&P) so these are are high investment grade ** Broker Dealers package these PTCs into CMOs
208
What benefit do CMOs provide that are not present with regular Pass through obligations?
a limited form of Call protection because interest payments are paid pro-rata and principal payments are sequential
209
a WORKABLE quote is:
an indication of a likely BID (calling likely dealers to get an idea of what price they will buy)
210
The Effective Federal Funds rate is composed of rates offered by:
the designated primary US Government securities DEALERS
211
Federal Funds are:
overnight loans of reserves from a commercial bank to a commercial bank
212
Which bonds are included in the Net Bonded Debt of a municipal issuer? (bonds that must be serviced through tax collections)
1. Self Supporting GO bonds
2. Non self supporting GO bonds
3. Non self supporting Revenue Bonds
213
What constitutes a FAILED Auction Rate Security?
1. Lack of Bids
| 2. Clearing rate below bid rate
214
In priority of claim in a corporate liquidation, who has higher priority, unpaid wages or secured bondholders?
secured bondholders
*then unpaid wages, debentures, subordinated debentures
215
Who participates in the Eurodollar Bond market?
Domestic investment banks, foreign commercial bands, domestic commercial banks
*cannot be issued in US; thrift institutions do not participate
216
Who provide fundamental analytical information about municipal issues?
Fitch's, S&P and Moody's
217
Investments that are least susceptible to reinvestment risk are:
investments that do not pay periodic payments
218
INVESTORS have NO _________ liability on the interest income received from a municipal bond fund
Federal tax
219
The investment company has NO _____ liability on the undistributed income that it retains from the municipal bond fund
federal tax
220
If a mutual fund invest solely in municipal securities, there is no ____ on the interest income received
federal income tax
221
Under the _____ theory, any payment distributed by the fund to the shareholders retains the same character of the mutual fund
"conduit"
222
When is an IRA NOT DEDUCTIBLE?
If the person opening the IRA is participating in a qualified plan or a couple that have income of $118k + (deductible phase out = 98-118)
223
Per person annual IRA contribution limit =
5500
224
The PURCHASER of a variable annuity bears what risk: ?
Interest rate risk
| Investment Risk
225
the ISSUER of a variable annuity contract bears what risk?
Mortality risk
| Expense Risk
226
Per the Investment Company Act of 1940, the minimum capital to start a fund is:
100,000
227
at least ___ % of fund Board of directors must be UNINTERESTED parties
40%
228
Fund investment objective can only be changed by ______
majority vote of the shareholders (i.e. outstanding shares)
229
Who sets the maximum sales charge for a mutual fund and what is the amount?
FINRA / 81/2%
The Investment Company Act does not establish this limit
230
What is an Equity REIT
a REIT that buys or leases real estate (apartments, shopping malls, office buildings)
Shareholders are paid dividends from the from the lease or rental income from the property
231
The beneficiary in a Coverdell Savings Account can:
BE CHANGED!
232
Tax deferred annuities (403B)s allow non-profit employees to contribute:
up to 25% of income (up to 18000 in 2015)
233
The original contribution limit set on a 401k was:
$7,000 (2015 the limit is 18,000) -- considered a salary reduction plan
234
Defined contribution limit =
25% of income (or $53000 for 2015)
235
Limited partnerships are ____ vehicles
Tax sheltered vehicles
236
REITS CANNOT pass ____ to their shareholders
losses
237
REITS cannot invest in:
limited partnerships/Direct Participation Programs = tax sheltered investments
(can invest in mortgages, real estate; securities, and other REITS) *75% must be invested in Real estate
238
A major benefit of buying a variable annuity it:
tax deferral of dividend, interest, and cap gain that are reinvested (must be reinvested)
239
If the actual interest rate earned in a separate account underlying a variable annuity contract is HIGHER than the AIR, the annuity payment :
WILL INCREASE (and vise versa)
Assumed Interest Rate (AIR)
240
What can REITs distribute to their shareholders? (3)
1. Capital gains (Conduit SubChap M) 2. Cash Dividends 3. Stock Dividends
* Not capital losses
241
___ are NOT allowed as an investment in an IRA account
collectibles, commodities futures and cash value of whole life insurance
(but gold is)
242
(3) Investment companies defined by the Investment Company Act 1940 are:
face amount certificate company; unit investment trusts, management companies
243
A BREAKPOINT SALE is:
selling a mutual fund to a customer in an amount that does not give the customer the benefit of the breakpoint = violation of FINRA
244
MUTUAL FUNDS must send their financial statements to shareholders ____
twice per year (semi-annually)
245
ERISA covers ___ plans only:
```
PRIVATE:
Profit Sharing Plans
defined contribution plans
defined benefit plans
Tax deferred annuity plans (403b)
Payroll deduction savings plans
(* Does not cover US Govt or state employees)
```
246
A defined contribution plan that specifies a fixed percentage of income or fixed dollar amount to be contributed to a plan annually
Money Purchase Plan
247
Contributions to an IRA can only be made in:
CASH
248
What is the penalty on excess contributions to an IRA or Keogh Plan
6% of excess
249
If a customer takes distribution from IRA before 59 1/2 due to disability what will they be charged?
only tax on the withdrawal amount, no penalty for disability distribution
250
What is the limit on IRA TRANSFERS each year?
Unlimited
(*IRA ROLLOVER limited to once per year in which IRA check written to account holder and they must deposit into Rollover account within 60 days)
251
Keogh contribution maximums are based on:
only on personal service income (earnings) --- 20% of income or $53,000 whichever is LOWER
NOT investment income
252
Contributions for a Qualified Retirement Plan (including Keogh, 401k..) must be made by ______ in order to be deductible from that year's tax return
tax filing date of the following year (so whenever you file taxes whether before April 15, or extension date)
253
403b plans allow for investment in:
1. tax deferred annuity contracts that can be funded my mutual fund purchases,
2. fixed annuities
*direct investments in common stocks NOT allowed
254
403b plans are Tax ________
Qualified
*deferred
255
REITs are similar to:
closed end investment companies
256
Are REITs registered under SA 1933?
YES!
257
REITs issue shares of:
beneficial interest representing an undivided interest in a pool of real estate investments
258
REITs CANNOT invest in:
Direct Participation Programs/Limited Partnerships
259
For REITs to qualify for preferential tax treatment and be regulated under Subchapter M (of the IRC), it must distribute ___ % of net investment income to shareholders
90%
260
In order to be regulated under Subchapter M, ___ % of REITs assets must be invested in real estate (mortgages, real estate etc)
75%
261
Which tax sheltered real estate investment allows losses to flow through to investors
RELPs (Real Estate Limited Partnerships)
262
RRs must have a _____ license to sell REITs, municipal bonds, corporate bonds, options etc..
Series 7
263
Equity REIT income is derived from:
the difference between net rental income and interest paid on the loans
264
BDCs make direct investment in:
Privately held companies (often start ups)
**They are publicly traded
Business Development Companies
265
What information is NOT included in the Official Notice of Sale of a municipal issue?
the interest rate (because this is determined by the winning bidder)
*The lowest interest rate bid wins and this interest rate is printed on the bonds when they are delivered to the bid winner
266
What are 3 determining facts in making a competitive bid for municipal issues?
1. Type of income source backing the bonds (GO, revenue, special tax);
2. current yield of similar bonds in the market;
3. Maturities of the bonds
267
What is the formula for determining Number of Bond Years?
Years to Maturity x # of $1000 Par bonds
Total of each line (2017 bonds = 2 years x 4000 = 8000 + 2018 bonds = 3 years x 4000 = 12000)
268
What is the formula for average life of a serial bond:
Number of bond years/# of $1000
269
Good faith checks are usually _____ of the total par value of the bonds offered
1% or 2%
270
The Bid Form submitted to the issuer in a competitive bid municipal bond underwriting is described as:
an uncompleted contract to buy bonds
| Bid Form - contract between bidder and issuer
271
When awarding a bid, issuer _____ any premium paid by the underwriter from the Net Interest cost
deducts --- premium reduces Net Interest Cost
Also, issuer adds any discount taken by the underwriter from the Net Interest Cost
272
In a municipal competitive bid, the Covering Bid would be accepted by the issuer if:
the winner failed to complete the purchase of the bonds
| the next best bid--higher than winning bid
273
A municipal "group" order is placed by:
a syndicate member for the benefit of the syndicate group account as a whole
274
In which municipal underwriting does the spread and offering price of each maturity have to be disclosed
negotiated
UW names and participation do not have to be disclosed
275
The RevDex consists of:
25 REVENUE bonds with 30 years to maturity rated "A" or better
276
4, 13, and 26 week T-Bills are auctioned:
weekly
277
1 year Tbills are auctioned:
monthly
278
In T-Bill auctions, which bids take priority (Non competitive or competitive)
Noncompetitive bids take priority at T-Bill auction
279
Payment for US Government securities that are sold through auction must take place on:
Issue Date
280
Payment for US Government securities that are sold through auction must be paid in:
Cash, Federal Funds, or similar maturing Government securities
281
6 month T-Bill Treasury Auctions are conducted on what day and settle when?
Conducted on Monday and settle on Thursday
282
Do Federal Reserve Banks bid at Treasury auctions?
No!
treasury securities are sold at auction conducted by the Federal Reserve
283
What are the minimum and maximum non-competitive bids at a T-Bill auction?
Min = $100; Max = $5,000,000
284
What is the minimum and maximum competitive bid at a T-Bill auction
Min = $5,000,000 max = unlimited (but not to exceed 35% of securities offered in any single auction)
285
New Issues of Agency securities are sold by:
selling group appointed by the Agency
**sells the issues at PAR to the public
286
US Government Agency Securities are underwritten via:
negotiated offering
*negotiated interest rates for pre-sale and selling concession for selling group
287
Agency Securities are not sold:
at auction
**sold through selling syndicated in negotiated offering
288
General Obligation municipal bonds are sole via:
auction
289
Firm Commitment Underwriting
underwriter is PRINCIPAL and takes full financial liability
- buys the issue outright from the issuer with intention of reselling to the public for a profit
290
Stand By underwriting
Underwriter agrees to purchase any unsubscribed shares in a new issue right offering on a firm commitment basis
291
All or None underwriting
syndicate members are NOT liable for any unsold shares
*if entire issue not sold, it is canceled
292
Best Efforts underwriting
underwriter acts as AGENT promising to use his best efforts to sell the issue, but takes NO financial responsibility
* if entire issue is not sold, it is canceled
293
Investment banker can act as _____ in an underwriting
AGENT or PRINCIPAL
294
An ANNUITY UNIT is:
the accounting measure of the annuity amount to be received by the owner
*Once annuitized, accumulation units are converted into annuity units
295
In a variable annuity annuitization, the amount of annuity units is _____ and the annuity payments _____
The amount of annuity units is fixed and the annuity payments may vary in annuitization
*depends on the performance of underlying securities --- risk of VA is varying annuity payments
296
The owner of a VA ______ change the payout option once it has been elected
MAY NOT
297
For Variable Annuities and Mutual Funds, asset appreciation is _____
untaxed (until distribution)
298
Both a Variable Annuity and Mutual Fund have portfolios that are:
managed
299
Fixed annuity premiums are invested in:
An insurance company's general account
300
What annuity/life insurance rollovers are permitted without tax due?
- variable annuity for variable annuity
- life insurance contract for variable annuity
- life insurance contract for life insurance contract
*variable annuity to life insurance not permitted (bc taxable pmts would be put off until death of life insurance owner and IRS wants taxes to be paid sooner)
301
Variable annuity contractual plan sold with "plan completion insurance" means:
if the annuitant dies prior to completion of the contract, the insurance company pays the balance of the contract to the custodian bank
302
When a partnership interest is sold in a Real Estate Limited Partnership, what is the tax treatment of passive losses?
The tax treatment of unused passive losses when the partnership is sold is to add them to the cost basis
(i.e. the unused passive loss is converted into capital loss when the partnership is sold)
303
In regards to tax advantaged investments, what is the RECAPTURE rule?
requires reclaiming of a tax benefit previously taken when an asset is sold (under IRS) rules.
*When a limited partnership sells a piece of equipment that it previously took depreciation deductions on, any capital gain on the sale to the extent of the depreciation deductions taken are taxed as ordinary income.
304
What are 3 benefits of TAX ADVANTAGED INVESTMENTS?
1. depreciation
2. Depletion
3. tax credits
**recapture and phantom income are a disadvantage
305
What is Phantom Income in regards to Limited partnership loan forgiveness
IRS rule stating that if a loan is forgiven, taxes are due on the amount of the loan forgiven
(tax due on the amount of the loan that exceeds the fair market value of the asset when the asset is returned to lender)
*even though no actual cash is received, tax is due on the "phantom income"
306
What is PRIMARY advantage of a Real Estate Direct Partnership Program (Limited Partnership)?
The ability to generate losses for tax purposes, but still provide positive cash flow
*depreciation serves as the primary loss deduction
307
The structure of a partnership generates _____ in the early years, and _____ in the later years:
higher losses in the early years and lower losses in the later years (front loaded deduction opportunity)
*passive losses can only offer passive income
308
REITs are stock companies that invest in real estate in a ______ form
closed end investment company form
**REITs are not direct partnership programs
309
Types of RELPs include:
New Construction, Existing Housing, raw land, and Condominium investments
310
Mortgage REITs do NOT allow:
pass through of losses to shareholders
311
_____ Direct partnership oil programs drill for oil in unproven areas
Exploratory ("wildcat")
*Produces Intangible Drilling Costs -- advantage
312
____ Direct partnership oil programs drill near existing fields
Developmental ("step-out")
* Immediate deductions with moderate risk
* Produces Intangible Drilling Costs -- lower risk since higher probability of finding oil
313
____ Direct partnership oil programs buy proven oil reserves in the ground, and sell them using the depletion allowance as a partial tax shelter
Income
*takes advantage of depletion allowance
314
4 types of oil and gas direct partnership programs
Exploratory, Developmental, Income, Combination
315
The PRINCIPAL BENEFIT of oil and gas "drilling" direct partnership program is:
Intangible Drilling Costs
(100% deductible as drilled) = labor, fuel, rental, and material expenses with no salvage value
316
In an Overriding Royalty Interest sharing agreement Oil and Gas partnership, the general partner:
takes a percentage from the first barrel produced without regard to cost
317
In a Reversionary Working Interest sharing agreement Oil and Gas partnership (also called Secondary Royalty Interest), the general partner:
defers taking a percentage of oil revenues until all costs laid out by the limited partners are recovered
318
In A Functional Allocation Sharing Agreement Oil and Gas partnership - the limited bears ______n and general partner bears _______ :
the LIMITED partners bear the immediate deductible intangible drilling costs and the GENERAL partner bears the tangible costs (recovered through depreciation over time)
319
The Cross Over Point in a Direct Participation Program refers to:
when the income from the investment exceeds the tax deductions generated by that investment
(begins to generate taxable income rather than tax losses)
320
In a Blind Pool Limited Partnership, the partnership investments:
are not known at the time of the offering
321
____ costs charged to the Limited Partnership are deductible from the partnership income
Ordinary costs
*As ordinary and necessary business expense
322
______ Bonds are used to finance construction of plants for corporate lessors and are "private use"
Industrial Revenue Bonds
*subject to AMT because they are non essential private purpose bonds (so are redevelopment bonds)
323
A WRITTEN financial statement is required from a customer who wishes to purchase:
A direct partnership program interest
*To determine if this "tax sheltered" investment is suitable for the customer
324
FINRA rule -- maximum UNDERWRITER COMPENSATION for selling DIRECT PARTNERSHIP programs is general limited to:
10% (of purchase price)
325
The ____ of a LIMITED PARTNERSHIP is the person who handles the organization of the partnership and the registration of the partnership securities
SYNDICATOR
326
UNMANAGED direct partnership programs are sold to investors by:
A wholesaler/sellers on a BEST EFFORTS basis
327
MANAGED direct partnership programs are sold to investors through a:
An Underwriter on a Firm commitment basis
328
REITS have a _____ that oversees operating management
Board of Trustees
*in a RELP, management is formed by general partners
329
Accounts Receivable Turnover Ratio
= Annual Net Sales/Accounts Receivable
330
Inventory Turnover Ratio
= Annual Cost of Goods Sold/Inventory
331
Current Ratio
= (Current Assets-Inventory-Prepaid Expenses)/Current Liabilities
332
Long Term Capital =
Long Term Debt + Preferred Stock + Common Equity
Common Equity = Common @ par + Capital in Excess of Par + Retained Earnings
333
Cost of Goods Sold and Depreciation are what type of Expenses?
Operating Expenses
334
What is the BASIC Corporate Income Statement?
```
Gross Sales
(Operating Expenses)
= Operating Income
(Bond Interest)
= Net Income Before Tax
(Taxes)
= Net Income After Tax
```
335
The Threshold List is defined by what?
Regulation SHO
*Threshold list is a list of "hard to borrow" securities --- if sold short by customer and they fail to deliver by settlement, must be bought back in no later than 10 Business Days (aka 13 day settlement)
336
the 5 Business Day Exercise Limit is established by:
Options Clearing Corporation
337
A Bond Anticipation Note is:
a short term municipal security issued as a source of interim financing
*short term note later retired by a permanent bond sale
338
A Specialist (DMM) can stop stock for:
public orders for brief time periods
339
FREDDIE Mac buys:
conventional mortgages from financial institutions and packages them into pass through certificates
*were listed on the NYSE but after sub prime loans -- now only trade on OTC and Pink Sheets
340
FAnnie Mac buys:
FHA and VA insured mortgages from financial institutions and packages them into pass through certificates
*were listed on the NYSE but after sub prime loans -- now only trade on OTC and Pink Sheets
341
GNMA buys:
performs same function as Fannie Mae by buying FHA and VA insured montages from financial institutions and packaging them into pass through certificates
GNMA is guaranteed by the US Government
*Cannot be sold off to the public for as long as it is guaranteed by US Govt
342
BEAR Spreads are profitable:
in a FALLING market
343
the SALE of INDEXED CALLS against a portfolio of LISTED securities is a:
NAKED WRITING strategy
344
Trades of FOREIGN currency OPTIONS settle:
cash/regular way
*Trades of foreign currency trade Spot/Forward
345
Municipal DOLLAR Bonds are generally:
Term Bonds (quoted on Percentage of Par Basis)
346
Municipal BOND quotes are generally:
serial bonds
*Quoted in BASIS points
347
Odd lot COMMISSIONS are set by:
NYSE
* Odd lots are handled by the Specialist/DMM -- bought and sold into/out of inventory
* Odd lots have NO priority
348
A "Collar" sets the call and put where?
PURCHASES a PUT(right to sell) price BELOW the underlying stock price and SELLS a CALL(obligation to sell) price ABOVE the underlying stock price
**essentially setting a floor and a ceiling
349
The REGULAR WAY EX-DATE is ____ days PRIOR to RECORD DATE
The regular way ex-date is 2 business days prior to record date
350
The ______ issues and guarantees ALL Options contracts
The OCC (Options Clearing Corporation)
*if an opening trade of an option contact takes place on the CBOE, the issuer of the contract is the OCC
351
The Formula for Debt Coverage Ratio is:
Collected revenues/Annual Debt Service Requirement
*Annual Debt Service included interest and principal
352
Net Overall Debt of a Municipality =
Net Direct Debt + Overlapping Debt
353
COMMON DIVIDENDS are usually PAID
QUARTERLY
354
New Issues of TREASURY BONDS are issued by the US Government in:
Book Entry Form
| same for short term municipal NOTES and BONDS
Treasury notes = $100 denominations
355
In a Corporate LIQUIDATION, COMMON STOCKHOLDERS are PAID when:
LAST!!
356
_______ with maturity of 270 days or less does NOT have to be registered under SA 1933 and is an EXEMPT security
Commercial paper
357
Who trades for their own account of the floor of an OPTIONS exchange?
Market Maker and Registered Options Trader
358
Dollar bonds are quoted on what basis?
Percentage of Par
*=TERM BONDS
359
Interest income on Mortage pass through certificates issued by GNMA and FNMA are taxed:
on all levels - federal, state and local
* FULLY TAXABLE
* Only the Federal FARM credit Funding Corporation Note is exempt for state and local tax
360
What are 1. Not subject to statutory debt limits and 2. have lower credit ratings of GO bonds of the same issuer?
COPs - Certificate of Participation
361
The PRINCIPAL advantage of purchasing a VARIABLE RATE municipal note is:
the MARKET value can be expected to remain fairly stable
362
____ on the CBOE accepts orders from member firms to be executed immediately?
Floor Brokers
363
Who on the CBOE maintains the book of public orders that cannot be filled immediately?
Order Book Officials
364
What is the SEC Regulation that requires large ECNs to publicly display their quotes so that they can be traded against electronically is:
Regulation ATS
*5% of trading volume in given stock --
365
____ requires that each exchange publicly displays their quotes and must be able to electronically access and trade against the best quote within 1 second
Regulation NMS
366
____ consists of rules covering trading of a stock when an additional share offering of that company is being made in the market
Regulation M
367
A Bonds rating becomes SPECULATIVE when it falls below _____ or _____
BBB or Baa
These are both still considered Investment Grade
368
Stand by Underwritings are a type of:
FIRM COMMITMENT underwriting used in RIGHTS OFFERING
*If all of the new shares are not subscribed by the existing shareholders, the issuer has an underwriting stand by on a firm commitment basis to purchase any unsubscribed shares (so the issuer is assured of selling all of the new issues
369
SAUCER formation and Odd LOT SALES are technical indicators of:
Considered to be BULLISH
370
The ODD LOT THEORY states:
small investor tends to trade odd lots and the small investor is always WRONG
*if small investor is selling; knowledgeable investor would buy
371
The BROKERAGE FIRM department that handles TENDERING of shares is:
the Reorganization Department
*This department also handles takeovers
372
The EFFECTIVE FED FUNDS RATE is:
the average daily rate charged by member banks for overnight loans of reserves
373
Phantom income created by a limited partnership program, is taxable income created if a partnership asset is ceded to the lender, when the LOAN balance EXCEEDS _________:
Asset FAIR MARKET VALUE
374
What is unique about Money Market Fund's Net Asset Value ?
It remains CONSTANT at $1.00
*regardless of if fund value appreciates
375
Interest Rate Risk only affects ______
Fixed Income Securities
*Does not effect foreign currency speculation
376
What is STANDARDIZED for LISTED OPTIONS CONTRACTS?
1. Strike Price (generally 5 point strike price intervals)
2. Contract Size (100 shares)
3. Expiration Date (saturday following 3rd Friday of the month)
377
The "Price" or "premium" of an option being traded is determined:
minute by minute in the trading market
378
Employment Duration
Reported Corporate Profits
Inventory to Sales ratio are all example of _____
LAGGING economic indicators
379
INITIAL claims for Unemployment is a _____ economic indicator:
LEADING
380
the OTCBB includes quotes for:
NON-NASDAQ stocks --- stocks that are TOO SMALL for the NASDAQ are found on the OTCBB
381
Monetarist Theory states:
The actions of the Federal Reserve controls the economic output
382
The Board of Directors DOES NOT SET ____
the EX DATE
They set the: Record date, payable date and declaration date
383
The BROADEST measure of the MONEY SUPPLY is:
L
*Consists of M-3 + money market instruments and government savings bonds
