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Series 7 Flashcards

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Series 7 Top-off Exam flashcards
1
Q

Moody’s/S&P Ratings

A 
Moody's:
Aaa
Aa
A
Baa
Ba
S&P:
AAA
AA
A
For notes (SP1-SP3)
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2
Q

Regulation NMS (National Market System)?

A

-Provide clients with best price (highest bid/lowest offer) available for listed EQUITY trades for ELECTRONIC execution

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3
Q

Increase of ¾ point for corporate bond:

A

One point = $10, therefore ¾ = $7.50 per $1000 par value

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4
Q

Rule 145?

A

Defines reclassifications of securities (meters, acquisitions, consolidations, spinoffs). Subject to registration requirements of Securities 1933 act.

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5
Q

Passive management examples

A

Mirroring of an index (S&P, Nasdaq)

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6
Q

UTMA minor dies - request to transfer to another minors UTMA?

A

Only transferable to minors estate. After proper documentation, assets can be dispersed based on instructions in will

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7
Q

Keogh Plan

A
  • Self employed

- 20% of income OR max $53,000 (deductible)

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8
Q

5% markup policy DOES NOT apply to:

A

Transactions are requiring a prospectus (mutual funds, new issues, registered secondaries) OR mutual funds (exempt securities)

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9
Q

Warrants likely to be issued to:

A

Debentures. Allows corporation to pay lower interest rate.

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10
Q

Rule 144A

A

Exemption for the purchase of restricted securities by qualified institutions. Qualified institutional buyers have at least $100 million investment in unaffiliated securities. Notice of offering - 90 days.

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11
Q

Money market dividend policy?

A

Declare daily, reinvest monthly

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12
Q

Delivery of a mutilated certificate is considered good delivery IF:

A

Authenticated by issuer or transfer agent or commercial bank

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13
Q

All retail communications concerning options must be approved by ROP. When is RDD required to be sent out?

A

At or before account is approved

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14
Q

Electronic Communication Network (ECN) ?

A

Permit electronic trading, after hours, anonymity, act in agency capacity (can’t be a market maker)

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15
Q

Rule 144 selling limits?

A

Greater of 1% outstanding shares OR four week average trading volume (after six month holding period)

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16
Q

CMO Denominations/Payment Structure?

A

$1,000/backed by pass through securities (Fannie Mae, Ginnie Mae, Freddie Mac)/pay interest and principal monthly

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17
Q

Correspondence?

A

25 or fewer retail investors within 30 day calendar period

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18
Q

Retail communications

A

More than 25 retail investors within 30 day period (regarding options, must be submitted to FINRA or exchange for approval at least 10 days prior to initial use and held for three years).

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19
Q

Institutional communications

A

Any bank, savings and loan, insurance company, registered investment adviser/company, government entity, employee benefit plan, member firm, person with $50mil+ total assets

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20
Q

To determine how far the market value of securities in LONG account could fall before maintenance call issue:

A

Multiply debit balance by 4/3

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21
Q

Placement ratio?

A

% of new bonds that were sold compare to those that were originally available for sale

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22
Q

Eurodollar

A

Pays interest/principal in Eurodollars (US dollars denominated in foreign banks)

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23
Q

Revenue anticipation notes

A

Short term municipal security issued in anticipation of receiving revenues from fed/state gov

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24
Q

Waiting period for research report:

A

If involved in underwriting IPO (manager/co-manager) 40 days. Secondary offering, 10 days. If syndicate member or selling group member, 25 days.

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25
Q

Rental income deductions:

A

Maintenance, property tax, depreciation, mortgage interest. NOT mortgage amortization

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26
Q

EMMA

A

Electronic municipal market access system. Primary market disclosure service for official statements. Contains information related to the continuing disclosure requirements submitted by municipal is sores on the secondary market transactions.

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27
Q

Settlement dates:

A

Corporate/Municipal securities - (T +3)
US Gov/Options Trades - (T + 1)
Cash - Same day

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28
Q

Initial margin requirement (long/short):

A

Long: BELOW $2000, 100% of purchase. BETWEEN $2000-4000, $2000. ABOVE $4000, Reg T deposit (50%).
Short: BELOW $4000, then $2000. If GREATER, required Reg T deposit

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29
Q

Open end vs. closed end

A

Open end companies are NOT offered below NAV. Max sales charge is 8.5%.

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30
Q

Maximum sales charge on variable annuity/life insurance policies?

A

Fair and reasonable amount

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31
Q

Bond Buyer 20-Bond Index

A

Compiled weekly, calculated from 20 specific and general obligation issues with an average rating of AA/Aa2 (NO revenue bonds). Purpose is to show trends in interest rates.

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32
Q

Consumer Price Index (CPI)

A

Measures average change in prices for selected goods and services purchased by consumers in certain cities. Computed monthly.

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33
Q

Roth IRA details

A

No age limitation for contributions/withdrawals. Limited to 100% of income or ($5500) + $1000 catch up provision (for old folks).

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34
Q

To establish portfolio margin program, the firm us obtain approval from:

A

FINRA

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35
Q

Regulation T settlement?

A

Within two business days after the settlement date of the transaction (5 business days from trade date)

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36
Q

Bank qualified municipal bonds:

A

Allow banks to deduct 80% of the interest cost. Made to encourage banks to invest and municipal securities. municipality may only issue up to $10 million annually.

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37
Q

Reverse repo vs repo (when is it which?)

A

Repo- Federal Open Market Committee (FOMC) buys securities from dealers with intent to sell back at future date.

Reverse- SELLS securities to dealers instead

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38
Q

Margin interest charges?

A

Customers are charged interest on the average daily amount of the debit balance. Generally no charges for interest and a short account.

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39
Q

Dow Jones Composite

A

30 Industrials
20 Transportation
15 Utility

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40
Q

Margin Requirements on Options

A

Buy option - 100% of premium
Sell covered - No deposit required
Sell uncovered- margin required (not calculated)

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41
Q

Once a variable annuity has been annuitized changes are:

A

NOT PERMITTED

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42
Q

If a yield based call is exercised, the writer:

A

Pays the buyer the in-the-money amount

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43
Q

Guaranteed bond:

A

Backed by a pledge of another corporation to pay principal and interest

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44
Q

Accrued interest on new municipal bonds is calculated from the:

A

Dated date

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45
Q

Currency transaction report (CTR) filed when:

A

$10,000 in cash or more is deposited

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46
Q

Choosing the highest permissible assumed interest-rate means payments will:

A

Most likely decrease over time (because the AIR exceeds actual performance)

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47
Q

NASDAQ Level I,II,III

A

Level one shows the highest bid and offer (inside market). Level two shows firm quotes and the marketmakers who are making a market in the security. Level III allows the marketmakers to change their quotations in the system

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48
Q

Code of Procedure (process use of discipline members who violate industry rules)

A

Hearing Panel - Appeal to National Adjudicatory Council - SEC - Fed Court (fine must exceed $2500 to be reported to CRD)

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49
Q

Short Interest Theory

A

Amount of a company’s common stock sold short, but not yet covered (large short interest does a bullish indicator)

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50
Q

Advance/Decline figures

A

Measure of the number of stocks that have increased versus number of issues that have decreased (breadth of the market)

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51
Q

Securities act of 1933

A

New issues, prospectus, red herring, full disclosure, primary markets

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52
Q

Securities Exchange Act of 1934

A

Secondary market, anti-fraud rules, creation of the SEC, margin (regulation T)

53
Q

Maloney Act of 1938

A

Created the SRO for over-the-counter markets (NASDAQ)

54
Q

Securities Investor Protection Act of 1970 (SIPC)

A

Protection against broker dealer bankruptcy. $500,000 coverage per separate customer, no more than $250,000 may be in cash

55
Q

Continuing education requirements

A

After two year anniversary and every three years thereafter. Must be completed within 120 days (four months).

56
Q

What is a penalty bid for underwriters?

A

If the stock is sold back to the syndicate at the stabilizing bid, the member must for for the concession on those shares

57
Q

Max profit when purchasing straddle?

A

Unlimited

58
Q

Equity indexed annuity

A

Provide a guaranteed minimum rate of return. Also can provide a return based on the performance of the stock market index and provide tax-deferred growth. NOT considered securities

59
Q

Market wide circuit breakers

A

Based on the S&P 500, calculated daily. Level one equals 7%, level two equals 13% (stops trading for 15 minutes). Level III equals 20%, stops trading for the remainder of the day

60
Q

Break even/max gains/max losses for CALLS

A 
Long call BE = SP + Premium
Long call MG = Unlimited
Long call ML = Premium
Short call BE = SP + Premium
Short call MG = Premium
Short call ML = Unlimited
61
Q

Break even/max gains/max losses for PUTS

A 
Long put BE = SP - Premium
Long put MG = SP - Premium
Long put ML = Premium
Short put BE = SP - Premium
Short put MG = Premium
Short put ML = SP - Premium
62
Q

Vertical Spread Math

A

Step 1) Dominant Leg (larger premium or LOWER SP for calls and HIGHER SP for puts)
Step 2) Net Premium for buyer = max loss
Net premium for seller = max gain
Step 3) BE = Dominant Leg +/- Net Premium (Call-Up or Put-Down)

63
Q

SMA is found by:

A

Subtracting required equity (50% of market value) from current equity

64
Q

Federal funds are:

A

Excess reserves loaned by commercial banks to other commercial banks and are a leading money market indicator

65
Q

A call premium is:

A

The amount the issuer pays above 100 to retire bonds prior to maturity

66
Q

Letter of intent:

A

For reduced sales charges. Fair for 13 months.

67
Q

Municipal bond backed by insurance company has gone into default. Insurance carrier will:

A

Provide timely payment of principal and interest

68
Q

MSRB regulatory agencies:

A

SEC or Finrod for broker-dealers. Comptroller of the currency for federal banks. FRB for state banks that are members. FDIC for member banks of the FDIC

69
Q

Bond Buyer 11-Bond Index

A

Average rating of AA+/Aa1 from general obligation bonds

70
Q

Selling SHORT margin (small amount)

A

GREATER of $2.50/share or 100% of market value

71
Q

If long and short equal number of shares/convertible bonds, maintenance requirement is:

A

5% of long position (tends to be market value), 10% for convertible respectively

72
Q

Municipal gains at OID/secondary market when held to maturity:

A

OID: no federal tax liability
Secondary: treat discount as original income

73
Q

Reporting systems for: Corporate bonds, Municipals, NASDAQ

A

TRACE, RTRS, TRF

74
Q

Mutual fund bid price/offer price

A

Bid price: equal to the net asset value

Offer price: equal to the net asset value plus the sales charge

75
Q

Bond Buyer MUNICIPAL Bond Index

A

Average of the prices of 40 long term municipal bonds adjusted to a yield of 6%

76
Q

Fourth market:

A

Institutions trading with other institutions

77
Q

Tax swap:

A

The purchase and sale of bonds to realize a capital loss to offset against a capital gain for tax purposes

78
Q

Listed options are issued and guaranteed by:

A

The Options Clearing Corporation (OCC)

79
Q

Mutual funds ex dividend date:

A

The date set by the fund or its principal underwriter. It is normally the same day as a record date.

80
Q

The value of investors interest in a variable annuity during the accumulation period is subject to fluctuation according to the:

A

Amounts of money deposited and performance of the separate account. NOT the AIR

81
Q

Which government body appoints primary dealers and government securities?

A

Federal reserve board

82
Q

A brokerage firm must deliver a risk disclosure document to a customer:

A

At or prior to the account being approved for options trading

83
Q

Formula for the total equity in a combined margin account=

A

LMV + CR - DR - SMV

84
Q

GNMA (Ginnie Mae) pass-through certificates key points:

A

Interest and principal received monthly and is guaranteed by the US government

85
Q

According to regulation T when purchasing an option contract the transaction must be paid for within:

A

Five business days

86
Q

Regulation FD key points

A

Applies to the issuers of securities. Requires that material non-public information disclosed to analysts or other investors be made public. If intentional disclosure, must be disclosed simultaneously. If unintentional, within 24 hours.

87
Q

When a customer buys and sells securities in a restricted margin account on the same day, it is called:

A

Same day substitution. The transactions net another against each other and the customer may withdraw cash equal to the margin requirement (50%) on the net amount

88
Q

When the designated marketmaker says “you’re stopped at 21” this means:

A

The floor broker is guaranteed a price of 21. Stopping stock may be done only for a public order.

89
Q

One selling stock to a customer, a markup should be based on the:

A

Lowest offer on the NASDAQ system

90
Q

Net revenue pledge bonds means:

A

Debt service is paid from net revenue (revenue after operating and maintenance expenses)

91
Q

A put option may be written in the cash account if the investor:

A

Has cash in the account equal to the exercise price. If the writer is short the underlying stock, the put is considered covered for margin purposes but can only be executed in a margin account

92
Q

Daytrader requirements

A

Four or more daytrades are executed over any five business day. Minimum equity required is $25,000

93
Q

If expecting sharp decline in interest rates in the near future, investors should buy:

A

Discount bonds was long maturities

94
Q

Investor has unlimited risk when (for non-basic option strategy):

A

Sold a put and is short the stock

95
Q

Section 401(k), 403(b),457, 457(b) users

A

For-profit/private employees, non-profit/public school employees, local government workers, federal government workers

96
Q

If a cash dividend is paid how does it affect a margin account?

A

Debit balance is reduced and SMA is increased by the amount of the dividend

97
Q

If a zero coupon security is sold for its accreted value:

A

No gain or loss. If sold ABOVE or BELOW, gain or loss respectively.

98
Q

4 types of syndicate orders:

A

Pre sale order- any order placed before the syndicate that actually purchases the issue
Group order- all members of the syndicate share in the profit
Designated order- place to buy a large institution that designates two or more members to receive credit for the sale
Member order- placed by members for their customers

99
Q

Maximum amount a customer may withdraw from a special memorandum account:

A

100% of the SMA (buying power is 2x)

100
Q

When stock is sold in a restricted margin account:

A

Market value gets reduced, SMA increases, and debit balance gets reduced

101
Q

Total bonded debt:

A

Long term debt + short term debt + overlapping debt

102
Q

Carrying firm must complete the transfer of the customer account:

A

Within three business days of validation of the transfer instructions

103
Q

The transfer of bonds from one party to another may be accomplished by an endorsement on the back of the bond certificate or through a:

A

Bond power

104
Q

Reverse convertible securities key points

A

Short term notes that usually pay coupon rate ABOVE prevailing rates (investor wants high current income and CANNOT participate in capital appreciation)

105
Q

Synonymous with NAV:

A

Redemption price

106
Q

Exchange traded note key points

A

Unsecured debt security. No interest payments made. Can be sold for a short term gain.

107
Q

PSA Model is used when pricing:

A

Collateralized mortgage obligations

108
Q

Treasury bill auction process

A

The four-week treasury bill is auctioned each week on Tuesday and is issued Thursday. 13 week and 26 week T-bills are auctioned weekly on Monday and are issued on Thursday.

109
Q

Transactions in NASDAQ stocks must be reported to FINRA by:

A

The seller within 10 seconds of the trade

110
Q

Expiration for equity options:

A

The third Friday of the expiration month at 11:59 PM Eastern time

111
Q

An order for a unit investment trust or under accumulation account must be entered as:

A

A related portfolio order

112
Q

Proceeds transaction markup (sale proceeds used to purchase another stock):

A

Only consider the amount of $ involved in the sale

113
Q

Prospectus delivery requirements

A

It’s subject to a listed IPO, 25 days. If IPO will not be listed on an exchange, 90 days

114
Q

Listed equity options cease trading at:

A

4:00 pm Eastern time on expiration date

115
Q

A high put/call ratio likely is a:

A

Bullish indicator

116
Q

Property tax is computed by:

A

ASSESSED value x millage rate (.001)

117
Q

Withdrawls must begin by age:

A

70.5

118
Q

Transfer agent is responsible for:

A

Issuing new certificates, canceling old certificates, keeping a record of shareholders and the number of shares each owns, handling problems that come about in cases of missing/lost/stolen/mutilated securities

119
Q

Long term brokered CDs are liquid or illiquid?

A

NOT considered highly illiquid (no active secondary market)

120
Q

When a customer has sold stock but has failed to deliver, the broker-dealer has to buy in (at the latest):

A

10 business days from the settlement date

121
Q

Who makes the decision to stop trading the option contracts?

A

The exchange on which the option trades

122
Q

Securities that are issued at discount and mature at par:

A

Commercial paper, bankers acceptances, treasury bills

123
Q

Build America Bonds will reimburse:

A

35% of interest payment

124
Q

When the seller must make physical delivery of the securities, takes place:

A

Buyers premises

125
Q

Maximum compensation for an offering a limited partnership is:

A

10% of gross proceeds

126
Q

Third market transactions:

A

Transactions in listed securities between FINRA members in the over-the-counter market

127
Q

Sell July 50 put and buy July 60 put = bear or bull?

A

BEAR. when you buy lowest strike price, this equates to bullish. When you buy highest strike price, bearish spread (APPLIES TO BOTH CALL AND PUT SPREADS)

128
Q

Broker re-hypothecate:

A

140% of debit balance

129
Q

ACATS

A

Automated customer account transfer service. Validation must occur within one business day and transfer within three.

Series 7 (1 decks)

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