sie Flashcards
Difference between general obligation (GO) bonds and Revenue Bonds
Type of issuer borrowing funds. GO bonnds are backed by the general revenue of the issuing municipality. Revenue bonds are supported by a specific revenue source.
T or F, Freely transferable interest is associated with an LP
False
True or False: 529 are municipal securities
True
Rules of Penny Stocks
Less than $5 and not a listed security
What are investment companies under investment act of 1940
1) Mutual funds/open end management co’s 2) Unit Investment Trusts (UIT) 3) Close end funds. (NOT hedge funds).
T or F: Fully disclosed firms can execute buy and sell orders for a customer
True
Tax status of a dividend paid to a US based american depositary receipt (ADR)
Dividends may be taxed by both foreign country and US
When securities are bought and sold, ownership changes hands:
On the settlement date of transaction
Private Placement
Issuing company sells securities to institutional investors (not primary placement)
Underwriters in a firm commitment
Act as principals
Tier 1 of Regulation A
Up to 20 mil in 12 month period
Selling long =
Selling to close
Can an officer of a bank with authority to purchase and sell securities on behalf of the banks purchase new issues
NO: He is considered a restricted person.
T or F: Private placements are exempt from securities act of 1933
True
What indicates shares of stock are held in electronic form?
Street name (not custodial name)
non listed and non nasdaq, a prospectus must be provided to all those who purchase as part of an apo for how many days after effective day?
40 days
Prime Brokerage:
Provides custody and clearing services, as well as margin loans (does NOT subcontract out services)
Tombstone Ad
Written advertisement that gives basic information. Not mandatory and does not offer to sell the securities.
Warrants vs. Callable Bonds
Warrants are options that give the holder the right to buy shares of stock at a set price within a period of time. Because they are options they can be bought and sold on in open market.
Callable bonds: Can be redeemed by issuer before they mature.
Participating (Investor owns 3% participating to 6%)
If a preferred stock is described as 3% preferred participating to 6%, the company pays its holders up to 3% in additional dividends in profitable years if the board of directors declares it.
Stock held in street name
A security is registered in the name of the broker rather than individual investor
FOK, GTC, AON
Fill or Kill: Executed immediately and to the full amount or cancelled.
Good til Cancel: Leaves order open until it can be fully fulfilled
All or None: Does not need to be executed immediately
Inside Quote
Undisplayed orders where inside bid is higher than display bid and inside ask is lower than display ask.
A broker-dealer maintaining and inventory in a certain common stock. When transacting business in DEF stock, the broker dealer acts in what capacity?
Market Maker
Exemptions to Securities Act of 1933
Government and Municipal (T bills/notes/bonds, STRIPS, TIPS Securities
Insurance Co Products
Bank Securities (not bank holding co’s)
Non-profit securities
Commercial paper
Railroad ETCs
Prospectus Delivery Day Requirements
Non-listed IPO: 90 days
Non-listed follow on offering: 40 days
IPO of security to be listed on nasdaq or NYSE: 25 days.
NYSE or Nasdaq follow on: No requirements.
Negotiable Securities
Securities are negotiable if they are bought and sold among investors who are “negotiating” pricing. (common stock)
Securities are redeemable if they are bough and sold directly with issuer (mutual funds, UITs)
How frequently do common shareholders have the right to receive an audited set of financial statements of the company’s performance
Annually
Who determines the ex-dividend date
FINRA (OTC) or Market Center such as NYSE for listed securities. One day prior to record date (because it takes stocks two days to settle (record)).
Hostile Takeover
Buyer goes directly to the target companies shareholders bypassing the board of directors or management.
Under what circumstances could a member firm holding stock in street name vote the shares as it sees fit?
If the customer does not return the signed proxy statement by the 10th day before the shareholders meeting, and if the matters to be voted on are of minor importance.
Rule 144
Rules regarding restricted, unregistered and control securities. Control persons are always subject to volume limitations.
For public company, securities must be held for 6 months. For private company, held for 1 year.
If selling party is an affiliate of a company, he cannot resell more than 1% of outstanding shares during any 3 month period. If stock is on exchange, only the GREATER of 1% or average trading volume of previous 4 weeks can be sold. OTC is 1%.
Arrears Dividend
Dividends that must be paid out to preferred stock before common stock.
Common Stock vs Treasury Bonds frequency of interest payments
Common stock - Quarterly
Corporate and Treasury Bonds - semiannually
STRIPS - Maturity
Tax reporting of GO Bond issued by guam
Ta free at all levels
T or F: Stips are a U.S. government agency debt security.
False
Bondholders should expect that interest payments would always be forthcoming for all of the follow except
Income Bonds
Adjustment Bonds
Bonds issued by companies coming out of bankruptcy
Another name for stated yield at time of security
Nominal yield
This type of debt maturity uses elements of both serial and term maturities
Balloon Maturity
Balloon Maturity
Portions of the total principal amount mature at staggard intervals and have a final payment significantly larger than previous ones (called the balloon). (Combination of serial and term)
Serial Bond
Bond that matures at staggard intervals before all segments have finally matured.
Term Bond
Bonds from single issuer that all matures on the same date.
Municipal GO bonds require:
Voter approval
Negotiable Jumbo CDs
Short term (less than 1 year) and value of at least $100,000 (often more than 1mil.)
Coupon payable on a bond may also be referred to as
Stated or Nominal yield
Coupon on Bond
Annual interest rate paid on a bond, expressed as a percentage of face value and paid from issue date to maturity. (same as stated or nominal yield)
Basis Yield is also known as
Yield to maturity
Your customer is a resident of Las Vegas, NV. What debt issues would generate interest taxable at the state level but not at the federal level?
Nevada city municipal water district revenue bond.
Income Bonds pay income when…
declared by board of directors
After tax yield calculation
Bond yield x (1-tax rate)
Issued without interest rate, but often at a discount to par value:
T-bills
If yield to maturity is higher than coupon rate, then it’s trading…
At a discount
Another term for a bonds basis
yield to maturity
What risk are bonds subject to
Business Risk
How many days can a letter of intent be backdated
90 days
This class of mutual funds are bought with no sales charge at time of purchase
Class B
Difference in trading between close end and open end funds
Close fund trade in market place based on supply and demand. Open end use only forward pricing and price once per day.
T or F: You can call attention to a specific section of a prospectus.
False
What is an investment company but not a management investment company
UIT
Mutual fund performance must be shown for how many prior years?
1, 5 and 10
Exchange Privilege
Fund sponsor allows investors to move funds from one fund to another within fund family
Custodial and IRA accounts must be opened as
Cash accounts
Reg T Initial Margin Requirements
Set by FRB (Fed Reserve Board). Borrowers can only borrow up to 50% of the purchase price. Investors must have minimum deposit of $2000 and maintain a maintenance requirement of 25% equity of securities in margin account.
T or F: A customer has to sign a consent to loan form to open a margin account
False
How can margin calls be met
Cash for 100% of the call. Or fully paid marginable securities for 200% of the call because securities are only marginable to 50% of their value.
When does a FINRA maintenance call occur
If equity drops below 25% or $2,500
This account bills a single fee annually for a group of services that might include asset allocation, portfolio management, and executions
Wrap Account
Which regulator sets maintenance requirements for margin accounts
FINRA
Who benefits most from defined contribution plans?
Younger employees
True or False: For Roth IRAs, distributions are required after reaching 73
False, they are not required
What is the penalty for not taking the required minimum distribution (RMD) for the year?
25% of the amount missed
A client buys stock on Monday, Aug 14 in a cash account. Under regulation T, when is the client’s payment due?
4 business days. Regular way firm-to-firm settlement is two business days after the trade date (T+2). Under Reg T, payment must be made two business days after the settlement date (S+2 or T+4)
Regarding purchases on margin, what is the difference between warrants and rights
Warrants can be purchased on margin, but rights cannot.
How many adult can act as custodian for an UTMA account
UTMA’s can have only 1 custodian, and 1 minor.
DBA can also be a
Sole proprietorship
True or False: To open a partnership account, you do not need a new account form signed by all partners
True: A new account form needs to be signed only by partners authorized to trade, not all partners.
How many companies are in the DJIA (Dow Jones Industrial Average)
30 companies
Which of the following theories postulates that market forces should be allowed to freely determine the price of goods with minimal government intervention?
Supply side theory
Leading Indicators
Money supply
Building permits (housing starts)
Initial unemployment claims
Average work week in manufacturing
New orders for consumer goods
Machine tool orders
Changes in inventories of durable goods
Changes in sensitive materials prices
Stock prices as measured by S&P
Changes in borrowing
Coincident Indicators
Number of hours worked (proxy for personal income)
Employment levels (rate of unemployment)
Nonagricultural employment
personal income
Industrial production
Manufacturing and trade sales
GDP
Lagging Indicators
Corporate profits
Average duration of unemployment
Labor cost per unit of output (manufacturing)
Ratio of inventories to sales
Commercial and industrial loans outstanding
Ratio of consumer installment credit to personal income
Contraction
Rising numbers of bankruptcies and bond defaults
higher consumer debt
falling stock prices
rising inventories
decreasing GDP
Trough
High unemployment
Flat GDP
Low inflation
Low, but not decreasing, consumer demand
Expansion
Increased consumer demand for goods and services
Increases in industrial production
rising stock prices
rising property values
increasing GDP
Peak
Very low unemployment
Slowdown in inflation
slowing of GDP growth
Steady consumer demand
Federal Reserve member banks that need to borrow money can borrow from:
Fed reserve bank at the discount rate. Or Fed reserve member banks at the Federal Funds rate
Economic headlines state that the consumer prices are rising while unemployment remains high. The economy is experiencing
Stagflation
Of the standard Fed Reserve tools, which is considered the most powerful and used infrequently?
Reserve Rate
To calculate earnings per share, you would need information from
both balance and income statement. EPS is earning available to the common shareholder (from income statement) divided by the number of outstanding shares (net worth section of balance sheet)
Most volatile interest rate in the US economy
Fed Funds rate.
Tools available to the FRB include:
open-market operations, setting the discoutn rate, setting reserve requirements
M2 measures
M1, Retail CDs and Money Markets
Debt Ratio
Measure of a companies LONG TERM debt as a percent of net worth.
Demand (Keynesian theory)
Stimulate the economy by lowering taxes and increasing government spending.
M1 is a measure of
Cash, cash equivelats and DDAs
What records must be kept for six years?
Customer Statements and Customer new account forms
What regulatory authority relies exclusively upon other examining authorities to enforce its rules?
MSRB
What must be kept for the life of the firm?
Stock Certificate Book
How many years must FOCUS reports, U4 forms and order tickets be kept for?
3 years
OTC and Exchange listed stocks must be protected and a member of:
SIPC (Securities Investor Protection Corporation)
SIPC was passed in 1970 to protext persons with brokerage accounts from loss due to failure of their broker-dealer
How many years must you keep records of: A list of the offices where registered reps conduct business; Compensation records for registered reps; The firm’s compliance manual’s.
3 years
True or False: Government security BD’s are required to become SIPC members
False
Which regulatory body oversees trading in the OTC market?
FINRA
How many years must you keep records of trade blotters
6 years
Which agency is not a division of the treasury department with some level of oversight for the securities industry?
FINRA - Not a government agency.
MSRB does not have authority over:
Municipalities / Municipal Governments
Where does a BD first appeal go?
NAC National Adjudicatory Council
Under the Uniform Securities ACt of 1956, who is responsible for enforcement of state securities regulations?
The Administrator
What agency collects and disseminates intelligence on financial transactions?
FinCEN
How long must partnership meeting minutes be kept for?
Life of partnership
How much insurance does SPIC cover?
500,000k with no more than 250k in cash.
A money market fund is a type of:
Security
Rules to prevent pay to play contrinbutions to political parties by firms invovled in the. underwriting or sales of municipal securities are enforced by
FINRA
MSRB has no authority to enforce the rules it enacts. It relies on FINRA.
How long must a firm that just made a contribution to a mayor’s reelection campaign wait before it can enter bids on proposed bond issues by the city?
If competitive bids, any firm may participate because city will select best arrangement available.
If it is a negotiated bid, there is a two-year waiting period.
When a registered person leaves the securities business, FINRA retains jurisdiction over that person for how long?
Two years
How many days and from whom must a firm obtain a new employees Form U5
60 days and from the employee or Central Registration Depository (CRD)
Customer complaints must be handled by
A principal of the firm
True or False: Form U4 does not require education history
True
A Municipal Finance Professional (MFP) is:
An employee of a FINRA member engaged in municipal security representative activities such as underwriting and trading.
How long is SIE and Rep exams valid after leaving member firm?
Rep exams: 2 years
SIE: 4 years
LGIP
Local Government Investment Pool. Securities established by states to provide other government entities such as cities, towns, school districts or state agencies with a short-term investment vehicle to invest funds.
Closed-End Fund
Managed equity portfolio that’s traded intraday.
What are the two types of Section 529 plans?
Savings plan and prepaid tuition plan
(ESA’s are NOT 529 plans)
Growth in a variable annuity tax rules
Tax deferred until withdrawn.
Income level differences between 529 and ESA plans
Contribution to an ESA are phased out at high income levels. 529 plans have no income limitations.
A member firm filled a customer’s sell order and did not charge a commission. The firm acted in what capacity?
A dealer.
Blue Sky Laws
State-level anti fraud Security Regulations and enforced buy SEC. Most follow model Uniform Securities Act of 1956.
Fee limitations of no-load mutual funds
up to 25 basis points.
When a BD charges a commission on a securities transaction, it has acted as:
An agent (not principal or dealer),
Treasury Stocks
Issued stock that has been reacquired by the corporation. (NOT authorized stock that has not been issued and is held in treasury)
True or False: Contributions to 529 savings plans are often deductible from state taxes
True
Reg T
Governs cash accounts and the amount of credit that BDs can extend to investors for the purchase of securities.
Investors can borrow no more than 50% of the purchase price while the remaining balance must be paid in cash.
If an investor buys and sells the same securities before paying for them, there is a 90 day freeze. (Freeriding)
In the event of a stock split, who is responsible for maintaining a record of the shareholders eligible to receive the additional shares?
Transfer agent (not issuer or custodian)
Redemptive value of an open-end investment company’s shares is based on:
NAV computed after the order is received.
Primary purpose of syndicate desk
Build an order book and allocate the stock.
How often must statements be sent to an inactive account holding securities?
Quarterly
What asset is traded according to its average life rather than their stated maturity dates?
Asset-backed securities
True or False: Fixed annuities are exempt from registration
True
True or False: Treasury mutual funds are exempt from reistration
False
All puts are in the money when:
The market price is below the strike price.
Principal designations are retained for how long?
6 years
Any sale of securities outside an associated persons or employing members firms regular business is considered a:
Private securities transaction
Which class of shares have 12b -1 fees?
C-shares
Maximum gain for any short option is”
The premium
Bonds that trade flat, without interest, unless declared by BOD, are considered:
Income Bonds
Who is responsible for the desired returns of a defined contribution plan?
The employee. The employee determines how the funds are invested, thus responsible for returns.
Treasury STRIPS, receipts, bills, bonds and nots all:
Mature at par value
A firm charging a customer a set amount to execute a transaction is acting as:
An agent
T or F: A broker-dealer may extend credit under regulation T for closed end funds
True
When are IPOs and other new issues eligible for margin purchase under reg T?
30 days
The decision to dissolve an LP before predetermined date is made by vote by
Participating LPs
Hypothecation
A customer pledging securities as collateral to a BD
Rehypothecation
A BD pledging customer securities to a bank as collateral
T or F: Mutual funds expense rations include sales loads and charges?
False
When the SEC clears securities for sale to the public, this date is known as:
The effective date
For all bonds trading at a premium, the YTC is always:
The lowest of all possible yields
What interest rate is considered the barometer of short term interest rates
Fed Funds rate (bank to bank overnight loans)
Between closed and open end mutual funds, which only issues common stock?
Open. Closed may issue common, preferred and bonds.
Betsy Bingham asks you what her current yield will be if she buys a 6% corporate bond at $1,200. The answer is
5% . Current yield is stated rate/current market price. 60/1200
Are reinvested dividends from mutual funds taxed immediately or deferred until withdrawal?
Immediate.
Is a pension plan a defined benefit or defined contribution plan
defined benefit
Profit sharing, 401k and money purchase plans are types of defined _________ plans
Contribution
Before borrowing or lending from a customer, what is an exception to the written notice and approval rules?
If they are an immediate family member of the representative.
How many classes of securities can open end investment companies issue?
Only 1 redeemable for common stock
Is 12b-1 funds part of the sales charge when shares are purchased or expense ration of the fund?
Expense ratio of fund
What does the MSCI-EAFE Index track?
Foreign equities
Interest from GNMA certs are taxable at what level(s)?
Both state and federal (principal is not taxed)
ETNs are debt securities backed by:
The issuer
What is the tax status of income from municipal bonds?
Income is tax free, while capital gains is taxable.
Fully disclosed broker dealer is also know as
Introducing BD
Contingent deferred sales charge is common with what class of shares?
B Shares
A party wishes to solicit proxy to vote a shareholders stock must register with?
SEC
Updates to U4 form must be made within
30 days
If BD charges a commission, it’s acting as an:
Agent
