Series 7 - Definitions, Regs and Rules Flashcards
What are the 5 agencies that congress authorizes to issue debt securities?
- Farm Credit Administration (FCS) - agency of fed gov’t.
- Gov’t National Mortgage Assoc. (GNMA / Ginnie Mae) - agency of fed gov’t.
Agency like but private corporations: - Federal Home Loan Mortgage Corp. (FHLMC / Freddie Mac)
- Federal National Mortgage Assoc. (FNMA / Fannie Mae).
- Student Loan Marketing Assoc. (SLMA / Sallie Mae).
What is the FCS?
FCS is the Farm Credit System. National network of lending institutions that provide agricultural financing and credit. System is privately owned but gov’t sponsored that raises loanable funds through the sale of Farm Credit securities. Funds made available through a national network of 8 banks and 225 Farm Credit lending institutions. The Farm Credit Administration, which is a gov’t agency, oversees the system. FCS issues notes, bonds and master notes that range from 1 day to 30 years. Interest is exempt from state and local taxes.
Describe a Special Situation Fund
Funds that buy securities of companies that may benefit from a change within the companies or the economy. Takeover candidates and turnaround situations are common investments. These funds are speculative (high risk).
Define inflation risk
The risk that fixed interest or dividend payments will be worth less over time in terms of purchasing power. As an example, the ability to convert preferred stock to common tends to offset as common tends to keep pace with inflation.
When a stock is inherited, what is the cost basis?
Cost basis is the price of the stock at the date of death.
Differentiate between technical analysis and fundamental analysis.
- Technical analysis attempts to predict the direction of prices on the basis of historic price and trading volume patterns when laid out graphically on charts.
- Fundamental analysis concentrates on broad-based economic trends; current business conditions within an industry; and the quality of a particular corporation’s business, finances and management.
What is a Rights Offering?
An offering of additional shares to existing shareholders.
What is a Tender Offer?
An offer to buy securities for cash or for cash plus securities. Used in context takeovers.
Describe an Inverse Fund.
Inverse Funds, sometimes called reverse or short funds, attempt to deliver returns that are the opposite of the benchmark index they are trading. Inverse funds can be leveraged funds (meaning attempting to deliver 2x or 3x the opposite of the index). Bought when an investor is bearish on the market as a whole or particular industry (e.g. transportation). Sold in ETFs for funds.
What is “paid-in surplus”?
Paid-in surplus is a balance sheet entry that accounts for money raised from the issuance of stock in excess of par value. When more stock is sold, paid in surplus will increase. Also called Capital in Excess of Par or additional paid-in capital.
What is Interest Rate Risk?
The danger that interest rates will rise and adversely affect (a bond’s) price. Risk is greatest for long-term bonds.
Full definition: The risk associated with investments relating to the sensitivity of price or value to fluctuation in the current level of interest rates; also, the risk that involves the competitive cost of money. Generally associated with bond prices, but applies to all investments. In bonds, prices carry interest risk because if bond prices rise, outstanding bonds will not remain competitive unless their yields and prices adjust to reflect the current market.
Describe a LOI in reference to received a breakpoint price on the purchase of mutual funds.
A person who plans to invest more money with the same mutual fund company may immediately decrease overall sales charge by signing a LOI.
-LOI states investor plans to reach the breakpoint within 13 months.
-One-sided contract binding only on the fund.
-Fund holds some of the shares in escrow.
-If customer makes required investment escrowed shares are released.
If not, given choice to pay sales difference or have underwriter liquidate enough escrowed shares to cover difference in cost.
-Appreciation and dividends do not count towards the LOI.
What are CMOs?
CMOs or Collateralized Mortgage Obligations are a type of asset-backed security. Asset-backed securities are ones whose value and income payments are derived or back by a specific pool of underlying assets. Pooling the assets allows them to be sold more easily (securitization). Pays principal and interest from the mortgage pool monthly; however repays principal to only one tranche at a time. Principal payments are made in $1,000 increments to randomly selected bonds within the tranche. Changes in interest rates affect the rate of mortgage payments and this in turn affects the flow of interest and principal payment to the investor. A CMOs yield and maturity are estimates based on historical data or projections from the Public Securities Association. Customers are required to sign a suitability statement before buying any CMO.
List 5 common CMOs.
- Principal Only (POs): sells at a discount from par. Market value tends to be volatile. Affected by fluctuations in prepayment rates. Value rises as interest rates drop and vice-versa.
- Interest Only: by-product of POs. Sells at a discount and cash flow decreases over time. IOs increase in value when interest rates rise and decline when rates fall. Can be used to hedge against a portfolio against interest rate risk.
- Planned Amortization Class: Targeted maturity dates, and retired first and offer protection from prepayment risk and extension risk.
- Targeted Amortization Class: Pays slightly higher interest in return for investors accepting greater extension risk.
- Zero-tranche CMO: Receives no payment until all preceding tranches are repaid. Most volatile.
How are Capital Losses treated from a tax perspective?
Capital losses are deducted from ordinary income and, therefore, reduce tax liability. The maximum that individuals or married couples can deduct is $3,000 annually. If the long-term capital loss exceeds the maximum, the excess is carried forward to future years until the loss is exhausted. Under current IRS regulations, $1 in losses results in $1 in deductions
What is A.M. Best?
A.M. Best historically has specialized exclusively in rating debt instruments for the insurance marketplace. They issue financial strength ratings measuring insurance companies’ ability to pay claims and rate financial instruments issued by insurance companies, such as bonds and notes. They can issue debt and financial strength ratings for other sectors as well, under the Credit Rating Agency Reform Act.
What are position limits as it relates to Options.
250,000 contracts on the “same side of the market” within a 5 business day period. Limit is subject to frequent adjustment. LEAPS are added to traditional options to determine if a violation has occurred. Same side is Long calls / short puts (bull) and long puts / short calls (bear).
What is Regulation D?
Regulation D: Private Placements
Private placement exempt transaction
Up to 35 non-accredited investors
The SEC does not require registration of an offering if it is privately placed with
Accredited investors that do not need SEC protection
a maximum of 35 (non-accredited investors)
An accredited investor is defined as one who: has net with of $1M (not including primary residence), annual income in excess of $200K in each of 2 most recent years ($300K jointly with spouse) and reasonable expectations income will continue, an insider of the issuer such as officer or director, institutions such as pension plan.
In order to solicit or advertise a private placement, the business must take reasonable steps to verify that all purchasers are accredited.
A private placement investor must sign a letter stating that they intend to hold the stock for investment purposes only. Private placement stock is called lettered stock due to this investment letter. Also called legend stock in that it cannot be transferred without registration or exemption.
While a business may sell to up to 35 non-accredited investors, in order to solicit or advertise, all purchasers must be accredited.
Rule 147
Under Rule 147, offerings that take place entirely in one state are exempt from registration when:
-issue has its principal office and 80% of income is in state
-80% of assets in the state
-at least 80% of assets are used within the state
-majority of employees are based in state
-all purchasers are residents of the state.
(only need one of the 80% qualificaitons)
Purchasers of an intrastate issue may not resell the stock to any resident of another state for at least 6 months.
Under the provisions of Rule 144, what percentage of outstanding stock may a control person sell every 90 days?
Rule 144 (sale of restricted or control stock) allows for the sale of 1% of the outstanding shares or the weekly average of the last 4 weeks’ trading volume (whichever is greater), every 90 days.
What are the 3 types of oil and gas DPPs?
exploratory
developmental
income
List the following for an Exploratory (wildcatting) Oil and Gas DPP: objective advantages disadvantages tax features risk
objective: locate undiscovered reserves
advantages: high rewards for discovery of new reserves
disadvantages: few new wells actually produce
tax features: High IDCs (intangible drilling costs) for immediate tax sheltering
risk: High - most risky
Institutional communication:
Any written communication that is distributed or made available only to institutional investors but does not include a member firm’s internal communication.
Retail Communication
defined in FINRA rule 2110 as “any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar day period.” Ads and sales literature fall under Retail Communication.
What is Modern Portfolio Theory?
MPT employs a scientific approach to measuring risk and by extension choosing investments. It’s a mathematical approach that is designed to reduce risk and increase performance of an investment portfolio by using different classes of securities that don’t always move in the same direction at the same time.
What is Capital Asset Pricing Model?
CAMP states that the only risk that can be defined is systematic risk because that cannot be eliminated by diversification.
Alpha
Alpha is the extent to which an asset’s or a portfolio’s actual return exceeds or falls short of its expected return. A positive Alpha = buy.
Balance Sheet equation
Assets = liabilities + shareholder’s equity or assets - liabilities = shareholder’s equity
Long-term liabilities
financial obligations due for payment after 12 months.
Capital Stock
includes both common and preferred and issued at par value which is an arbitrary value with no relationship to market price.
Retained Earnings
Earned surplus or accumulated earnings are profits that have not been paid out as dividends. Retained earnings represent the total of all earnings held since the corporation was formed, less dividends paid to stockholders. Operating losses in any year reduce the retained earnings from prior years.
working capital
current assets - current liabilities
current ratio
current assets divided by current liabilities. Higher the ratio the more liquid.
Quick Asset Ratio
Acid test ratio. uses quick assets instead of current assets. Quick assets are current assets minus inventory.
debt to equity ratio
debt to total capital. How much of the capital is debit
book value per share
tangible assets - liabilities - par value of preferred
_____________________________= book value per share
shares of common stock outstanding
fundamental analyst
one who focuses on company’s books
EPS
Earnings per share = earnings available to common / number of shares outstanding
current yield
CY = annual dividends per common / market value per common
dividend payout ratio
= annual dividends per common / EPS
EBIT
Earnings before Interest and Taxes. Allows fundamental analyst to focus on operating profitability.
P/E Ratio
Price to earnings = current market price of common / earnings per share.
Head and shoulders top
indicates the beginning of a bearish trend, reversal of an upward trend
Head and shoulders bottom
indicates the beginning of a bullish trend, reversal of a downtrend.
odd lot theory
when odd-lot traders buy, odd-lot analysts are bearish and when odd-lot traders sell, odd-lot analysts are bullish
short-interest theory
short interest refers to number of shares that have been sold short. short interest reflects mandatory demand which creates support levels. High short interest is a bullish indicator and low short interest is a bearish indicator.
authorized stock
specific number of shares a company has authorization to sell.
statutory voting
allows a stockholder to cast one vote per share owned for each item on the ballot.
cumulative voting
allows stockholder to allocate their total votes in any manner they choose.
bid / ask
buyer will pay the ask seller will receive the bid
What is the intrinsic value of an option at the money?
zero. and there is no such thing as negative intrinsic value.
Closing purchase (options)
an options transaction in which the seller buys back an option in the same series; the two transactions effectively cancel each other out, and the position is liquidated
Closing sale (options)
an options transaction in which the buyer sells an option in the same series; the two transactions effectively cancel each other out, and the position is liquidated.
Hedging
using an option to protect the position of an underlying security.
ratio call writing
selling more calls than the long stock position covers.
collar
protecting the downside risk on a long position of stock for no out-of-pocket cash. Involves buying a put and selling a call so that the net gain is zero. This protects downside risk but also limits the upside as well.
spread
simultaneous purchase of one option and sale of another of the same class. e.g long call and short call or long put and short put.
price spread
also now as a vertical spread - one that has different SPs but the same expiration date.
Time Spread
also known as a calendar spread or horizontal spread includes option contracts with different expiration dates but same SPs.
diagonal spread
one in which the options differ in both time and price.
Debit call spread
Used by investors to reduce the cost of a long option position. Potential reward is also reduced. Investor is bullish.
Breakeven on a call spread
NP + lower XP (CAL)
breakeven on a put spread
Higher XP - net premium (PSH)
credit call spread
used by investors to reduce the risk of a short option position. potential reward is reduced. investor is bearish.
debit put spread
used by investors to reduce the cost of a long put position. Investor is bearish.
credit put position
created to reduce the risk of a short put position.
How do you determine a spread investor’s market attitude?
market attitude of a spread investor is determined by the option that is the more costly of the two. For call spreads, the option with the lower SP has the higher premium. Whether the spread is a debit or credit will depend on if the investor bought or sold the option with the lower SP. Debit if the investor purchased the one with the lower XP (higher premium) and a credit if the investor sold the one with the lower premium (higher XP) For put spreads, it is just the opposite. The option with the higher XP has the higher premium. Debit if investor purchased the one with the higher XP (higher premium) and a credit if the investor sold the one with the higher XP (higher premium)
What is a straddle?
composed of a put and a call with the same SP and expiration month. Straddles can be long or short and are used to speculate on the price movement of a stock.
Long straddle
investor expects substantial volatility in the stock’s price but is uncertain of the direction price will move.
Short straddle
investor expects that the stock’s price will not change or will change very little. Investor collects both premiums.
Combination Straddle
composed of a call and a put with different XPs, expiration months or both.
Index options
multiplier is 100, settle in cash, settlement price is based on closing value on day of exercise (not value at time of exercise). Expire 3rd Friday of the month.
what is the size of a foreign currency contract?
most are 10,000; japaese yen is $1M. most are quoted in cents. Yes is 1/100th of a cent.
Settlement for options
Next business day, stock as a result of settlement is regular way (two business days).
Designated Primary Market Maker
DPM. floor trader responsible for maintaining a two-sided market for specific produce on CBOE and is the trading firm designated by the exchange to ensure a fair and orderly market. DPM can perform roles of a market maker (trade from own account) and/or floor broker.
OCC
Options Clearing Corporation is the clearing agent for listed options contracts and is owned by the exchanges that trade options. Primary functions are to standardize, guarantee performance of and issue options contracts.
Option Contracts Adjustment
Contracts are adjusted for splits, stock dividends and rights offerings. Not adjusted for cash dividends or cash distributions of less than $12.50 per option.
How a re uneven stock option splits treated.
Additional contracts are not created but rather a larger number of shares in the contract. For example, after a 3:2 split 1 ALF 60 call will effectively become 1 ALF 40 call with 150 shares in the contract.
open interest
number of contracts outstanding. higher the open interest, the more liquid the option, as expiration approaches, open interest begins to decline.
put-call ratio
reflects the current open interest in the trading of put options to call options. The higher the ratio, the more bearish investors have been up to that point in time.
What is tax treatment of a LEAP writer
short-term cap gain at expiration.
What is the tax treatment of a LEAP buyer
LT losses and gains if held for more than 12 months.
What is the tax treatment of an option that expires
buyer reports a capital loss = premium and seller reports a capital gain equal to the premium.
What is tax treatment on a closing out sale (options)?
Closing sales or purchases generate a capital gain or loss equal to any price difference. Gain or loss is reported on the basis of the closing transaction.
Tax treatment at exercise (option)
The exercise of an option does not generate a capital gain or loss until a subsequent purchase or sale of the stock occurs.
Married put
customer buys stock and buys a put option on the stock as a protective hedge. the put is said to be married to the stock and for tax purposes the cost basis of the stock must be adjusted upward by the premium.
Is buying a call option with a lower strike price and writing same with a higher strike bullish or bearish?
bullish
What are the rights of a GP in a LPP as defined in the partnership agreement?
- right to charge a management fee for making business decisions for the partnership
- authority to bind the partnership into contracts
- right to determine which partners should be included in the partnership
- right to determine whether cash distributions will be made.
Basis calculation in a LPP
investment in partnership + share of recourse debt - cash distribution.
Limited Tax GO
GO bond secured by a specific tax (e.g. income). comes with more risk.
Overlapping debt (munis)
Bonds issued by different municipal authorities that tap the same tax payer wallets (conterminous debt). Only occurs in property taxing situations.
double-barreled bonds
revenue bonds that have characteristics of GOs. Interest and principal are paid from a specified facility’s earnings but the bonds are also backed by the taxing power of the state or municipality. Rated and traded as GOs
Trust endenture
Revenue bonds may refer to a trust indenture (bond resolution) which empowers the trustee to act on behalf of the bond holders. Trust indentures are not required for muni bonds per the Trust Indenture Act of 39. Use is optional but greatly enhances marketability.
Industrial Development Revenue Bonds
IDRs or IDBs. Technically issued for a corporation’s benefit and interest may be taxable and subject to AMT.
Lease Rental Bonds
Municipality issues bonds to finance office construction for itself or its sate or community. e.g. bonds issued to build a school and then lease the finished bond to the school district.
Certificates of Participation
form of lease revenue bond that permits the investor to participate in a stream of revenue from lease, installment or loan payments related to the acquisition of land or the acquisition or construction of specific equipment or facilities by the municipality.
Special tax bonds
muni bonds secured by one or more designated taxes other than ad valorem (property) taxes. e.g. supported by sales, gas, business licenses, etc.
New Housing Authority Bonds
NHAs. Used to develop low income housing. Backed by full faith and credit of US Government.
moral obligation bonds
state or local issued or state or local agency issued bond. If revenues or tax collections backing the bond are not sufficient to pay the debt service, the state legislature has the authority to appropriate funds. makes bond more marketable.
Issuer default on a GO Bond
If a GO bond goes into default, bondholders have the right to sue to compel a tax levy to pay off the bonds.
Municipal Anticipation Notes
short-term securities that generate funds for a municipality that expects other revenue soon. Usually less than 12 month duration but can range from 3 months to 3 years.
TANs
Tax Anticipation Notes: used to finance current operations in anticipation of future tax payments.
RANs
Revenue Anticipation Notes: Used to finance current operations in anticipation of future revenue from revenue-producing projects or facilities.
TRANs
Tax and Revenue Anticipation Notes: TANs + RANs
BANs
Bond Anticipation Notes. sold as interim financing that will eventually be converted to long-term funding through a sale of bonds
Tax-exempt commercial paper
often used in place of BANs and TANs for up to 270 days, though maturities are most often 30, 60 and 90 days.
CLNs
Construction Loan Notes. issued to provide interim financing for the construction of housing projects
Variable-rate demand notes
have a fluctuating interest rate and are usually issued wiht a put option
GANs
Grant Anticipation Notes: issued with the expectation of receiving grant money from the federal gov’t.
Variable Rate Municipals
Some muni bonds and notes are issued with variable or floating rates of interest. interest payments are tied to the movement of another specified interest rate, much like an adjustable rate mortgage. Sometimes called reset bonds. Price remains near par because coupon is reset every six months.
ARS
Auction Rate Securities: long term, variable rate bonds tied to short term interest rates.
BABs
Build America Bonds. Taxable but issue tax credits to expand base of potential investors. Tax Credit BABs provide bondholder with a federal income tax credit equal to 35% of the interest paid on the bond each tax year. Direct Payment BABs provide no payment to the bondholder but instead provide the issuer with payments from US Treasury equal to 35% of interest paid by issuer.
LGIPs
Local Government Investment Pools. States establish LGIPs to provide other government entities with short-term investment vehicles to invest funds.
Bond resolution Indenture
known as underlying trust indenture or protective covenant. Optional. Most include to make more marketable. Normally includes flow of funds establishing priority of payments made from a facilities revenues.
Negotiated Underwriting
Municipality appoints an investment banker to underwrite the offering.
Competitive Bidding
Municipality publishes an invitation to bid. The bid representing lowest net interest cost to the issue is the winner in a competitive bind.
Thomson Muni Market Monitor
formally munifacts - provides info relative to secondary market.
Total Takedown
Concession + Additional Takedown
Spread
Total Takedown + Management Fee
What are the 2 ways new muni bonds are issued?
fully registered or book entry.
How is accrued interest calculated for a gov’t bond vs a muni
Gov’t uses actual days while muni uses 30 day months. A bond begins accruing interest on the prior interest payment date and accrues up to, but not including, the settlement date.
What is “trading flat” - relative to a bond
When a bond trades flat, the buyer does not owe accrued interest to the seller. Trading flat means there is no accrued interest due.
What is the “placement ratio” as shown in Bond Buyer?
The placement ratio is a measure of investor demand for new issue municipal bonds. It is computed by dividing the dollar amount of bonds placed (sold) each week by the dollar amount offered that week. A high ratio indicates a strong demand while a low ratio reveals the opposite. Although not tested, historically, there have been weeks (rare) where the placement ratio has been 0%. Fortunately for the underwriters, it is not unusual to see a ratio of 100%.
To be designated as an accredited investor under regulation D, a married couple investing in a joint account must have a minimum income of?
$300K
An accredited investor is defined as one who…
- has net worth in excess of $1M, not including equity in a primary residence
- has had an annual income in excess of $200K in each of two most recent years ($300K jointly with spouse) and reasonable expectation of reaching same income level during current year
- is an insider of the issuer such as officers and director
- has institutions such as a pension plan
What are the 3 methods an issuer or investment banker may “blue sky” an issue?
Qualification: Issuer files with the state, independent of federal registration, and must meet all state requirements
Coordination: Issuer registers simultaneously with the state and the SEC. Both registrations become effective on the same day
Notice Filing: Securities listed on major exchanges as well as investment companies registered under Investment Company Act of 1940 are known as federal covered securities. State registration is not required but most states require filing of notice.
Firm Commitment Underwriting.
Most commonly used type of underwriting contract. Underwriter commits to buy the securities from the issuer and resell them to the public. Underwriters assume the financial risk of incurring losses in the event they are unable to distribute all the shares to the public.
Generic Advertising (SEC Rule 135A)
Generic Advertising promotes securities as an investment medium but does not refer to any specific security. All generic advertising must contain the name and address of the sponsor of the advertisement but never include the name of any specific security.
Transfer Initiation Form
Used and sent to the Automated Customer Account Transfer Service (ACATS) when a customer wants to transfer his account to another BD. Carrying Firm has one day to validate the securities and then 3 days following validation to complete the transfer.
What types of securities may Open-end and closed-end funds issue?
Closed-end funds may issue more than one class of security, including debt issues and preferred stock. Open-end funds may issue only one class of security: redeemable, voting common stock; they may not issue senior securities.
Describe ADRs
American depositary receipts, (ADRs) are designed to facilitate the trading of foreign securities for U.S based investors. ADRs with few exceptions, do not have voting rights, The holder of an ADR does not hold the shares of the underlying foreign security but instead holds a receipt for those shares. ADRs are U.S. securities traded in U.S. markets in U.S. dollars, with dividends received in U.S. dollars as well. There is both currency and political risk associated with ADRs.
What types of companies are registered with the Investment Company Act of 1940?
Under the Investment Company Act of 1940, face amount certificate companies, unit investment trusts, open- and closed-end management companies, and separate accounts of insurance companies used to fund variable annuity and variable life contracts, must register with the SEC as investment companies. Note that the separate account is registered as an investment company, not the variable contract.
What is segment rotation?
Segment rotation, more commonly known as sector rotation, involves altering portfolio composition based on which sectors are poised to outperform as the business cycle is changing phases.
Book value per share.
The liquidating value of the company is its book value, the book value per share is what the common stockholders would receive.
Key Features of a Section 529 Plan
The features of Section 529 plans, including their contribution limits and fees, vary widely from state to state. Section 529 plans have no age limits as to participation; they are open to both children and adults who plan to attend college or graduate school. For college savings plans, there is no state residency requirement for either owners or beneficiaries of Section 529 plans.
define bid/ask price
ask price - sometimes called the offer is the price at which dealers are willing to sell
Bid price is the price at which dealers are willing to buy.
If a quote is 21.50 - 21.55 19x7 the dealer is willing to buy up to 1,900 shares at 21.50 and sell up to 700 at 21.55.
TRF
Trade Reporting Facility. Automated Trade Reporting and reconciliation service.
DMM
Designated Market Maker. Facilitates trading in specific stocks. Chief function is to maintain a fair and orderly market. Act as both the broker and dealer.
Market Order
executed immediately at the market price. Has priority over all other types of orders.
Limit Order
Limits the amount paid or received for securities. Buy limits are placed below the current market and sell limits are placed above the current market. Limit orders stand in time priority.
Stop Order / Stop Loss order
becomes a market order if the stock reaches or goes through the stop (trigger or election) price. Designed to protect a profit or prevent a loss if the stock goes in the wrong direction. No guarantee exists that the executed price will be the stop price (unlike the limit order). Stop order takes two trades to execute: trigger and execution.
Stop Limit
entered as a stop order and then changed to a limit order if the stock hits or goes through the stop (trigger or election) price.
Buy Stop Order
Protects a profit or limits a loss in a short stock position. Entered at a price above the current market and is triggered when the market price touches or goes through the buy stop price.
Sell Stop Order
Protects a profit or limits a loss in a long stock position and is entered at a price below the market value.
stop limit order
A stop order that once triggered becomes a limit order.
Why use a buy stop order?
- protect against in a short position
- protect gain from a short stock position
- establish long position when a breakout occurs above the line of resistence.
Why use a sell stop order?
- protect against loss in a long stock position
- protect a gain from a long stock position
- establish a short position when a breakout occurs below the line of support
Day Order
unless marked to the contrary, an open order (stop or limit) is assumed to be a day order.
GTC
Good til canceled. Valid until executed or canceled. Automatically canceled if unexecuted on last day or April and last day of Oct.
NH Orders
Not Held. limited to a day order unless otherwise stated. or if customer states GTC in writing.
FOK Order
Fill or kill. Fill order completely at limit price or better or kill it.
IOC Orders
Immediate or Cancel. IOC orders are like FOK except that partial execution is acceptable.
AON Orders
All or None. Must be executed in their entirety or not at all. AON can be day or GTC orders. They differ from FOK in that they do not have to be filled immediately.
Regulation SHO
mandates a locate requirement on short sales which means that before the short sale of any equity security, firms must locate the securities for borrowing. Naked short selling is not permitted.
OATS
Order Audit Trail System. Automated computer system created to record information relating to orders, quotes and other trade information from all equities that are traded on the NASDAQ.
5% markup policy
Guideline only and not a firm rule.
Do commercial bank holding companies have to register with the SEC?
Yes, Commercial bank holding companies are corporations that have to register with the SEC.
Trust Indenture Act of 1939
The Trust Indenture Act of 1939 protects investors in corporate bonds should the issuing company default. While the Acts of 1933 and 1934 both impact debt securities, the Trust Indenture Act of 1939 is the only act that regulates them exclusively.
Regulation D Offering
Exempts from registration offerings sold to a maximum of 35 non-accredited investors. Private Placement. Regulation D offerings are exempt transactions and therefore no SEC registration is required. However, issuers must still file information with the SEC on Form D regarding the issue. This filing will contain all of the information a potential investor might want to know, similar to the information contained on a prospectus. There is no limit to the amount of capital that can be raised via a Regulation D private placement transaction. Exem
What types of Income are partially exempt to a corporate investor?
Fifty percent of dividend income received from investments in common stock and preferred stock is excluded from taxation for a corporate investor. This exclusion applies to dividends from mutual funds where all of the portfolio securities are preferred or common stock.
Are summary sections and Statements of Additional Information required in the prospectus of a management investment company?
A statement of additional information (SAI) need not be in a prospectus but available for both open and closed-end investment companies. It consists of information not necessarily needed to make an informed purchase decision but still useful to the investor. The SEC however mandates that “enhanced disclosure” in the form of a summary section be included in the prospectus of open-end investment companies (mutual funds). It must be written in plain language and the SEC mandates the order of, and the items to be addressed in the summary.
Rule 144 10% rule
Under Rule 144, an affiliate is a person in a control relationship with an issuer. Because neither of the investors own at least 10% of the stock, they are not control persons under Rule 144 and do not have to comply with the rule. There is a requirement to combine holdings by certain family members, such as a spouse or other immediate family residing in the same home. If the question indicated that the father and son share the same residence, then the filing requirements of the rule would apply because the 13% total would make them control persons.
What are the items that may be included on an IPO tombstone ad?
Under SEC Rule 134, a tombstone advertisement may be placed by the syndicate manager on or before the offering’s effective date and is limited to the name of the issuer, type of security being offered, number of shares to be sold, public offering price, and names of the syndicate members.
When an officer or director acquires control stock when a company goes public and then wants to sell the securities to a retail investor, what is the mandatory holding period?
None because the securities were received in a public offering, the securities are registered securities (not restricted) and therefore there is no holding period. However, the sale is subject to Rule 144 volume limits. Control stock that is received in something other than a public offering is restricted and would have a 6 month holding period in addition to volume limitations.
What are the relevant factors in determining whether underwriting compensation is fair and reasonable?
Relevant factors considered by FINRA in determining the fairness of underwriting compensation include the size of the offering (total dollar amount), the type of commitment (firm commitment or best efforts), the type of securities (i.e., stocks or bonds), the form of compensation (i.e., cash or stock), the total value of all forms of compensation, the underwriter’s relationship to the issuer, and any form of potential conflicts of interest.
Mini-max underwriting agreement.
A mini-max agreement is a type of best-efforts underwriting agreement. In a best-efforts agreement, the underwriters are not purchasing unsold shares from the issuer. There are two components to a mini-max agreement: the first component sets a floor or minimum amount the issuer needs to raise in order to move forward with the underwriting, and the other sets a ceiling or maximum dollar amount of securities the issuer is willing to sell.
A resident of a state who acquires stock pursuant to Rule 147 (intrastate offerings) is prohibited from selling the stock to a nonresident of that state for how many months?
Rule 147 stock cannot be sold to a nonresident of the state for a period of six months after the purchase date.
