SIE 16-20 Flashcards by Jenna Marcante

In the SEC Act of 1934 which prohibits manipulative and deceptive practices, which rule includes specific anti-Manipulation provisions

Rule 10b-5

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What prohibited trading practices spreads false of misleading information to influence the price of the stock

Market rumors

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What prohibited trading practices is when RRs execute trades for a proprietary (self) accounts ahead of a customer’s block order i.e. stock or trading derivatives prior to executing a large movement

Front-running

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What prohibited trading practices affecting trades near open or close in an attempt to influence the stock’s open or close up or down

Marking the close / open

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What prohibited trading practices is when a RR does exercise trading for the purpose of generating additional fees and commissions

churning

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What prohibited trading practices refers to inserting another BD between a customer and the best market. Prohibited if detrimental to customer but acceptable if adventurous

Interpositioning

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What prohibited trading practices involves trading ahead of customer orders for own account that would have satisfied the customers order. exception if there are information barriers and executed by a different department at same firm

Trading ahead of customer orders

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Rule that prevents manipulation by persons with an interest in the outcome of an offering and prohibits activities that could influence an offered security’s market

Regulation M

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What rules are covered in regulation M

Limits bids and purchases by distribution participants (underwriters and selling group members) 2. Prevents related parties from buying stock in secondary market during time around the new issue (restricted period) 3. Allows for passive market making and permits distribution participants to execute unsolicited trades to maintain marketability. 4. permits stabilization of new issue to protect its price from falling substantially

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A market maker that publishes a quote is obligated to buy to sell at its stated bid or offer and up to the size quoted

Backing away

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What regulations regulated payment from customers to broker dealer

Regulation T

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Who regulates regulation T

The fed reserve board

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When payment must be obtained for purchases that are made either in cash or margin accounts

Two business dates of settlement (S+2) total of 4 days

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Violation when an investor buys a stock then sells that stock to pay for purchase

Free riding

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Actions prohibited under anti-intimidation / coordination interpretation

coordinating price quotes, threating, harassing, or intimidating other market makers, retaliating or discouraging the competitive activities of another market maker

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Best execution trading rules

a BD must use reasonable diligence to obtain best execution for their customers.

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MSRB time of trade disclosures

Dealers are required to provide customers with all material information that is know or reasonably available at or prior to time of trade

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Insider trading penalties

Civil - the sec may demand triple amount the damages and release of any profit and criminals - justice department an individual may be subject to a max fine of 5 million and or up to 20 years in permission

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Bounties for insider trading

Eligible whistleblowers are entitled to an award of 10-30% of monetary sanctions collected

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The new issue rule

FINRA prohibits member firms (any BD), immediate family of member firms that share a household, purchase is made through family members RR, or use 25% of the income of the restricted person, from selling equity IPOs to any account in which restricted persons have a beneficial interest

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preconditions for IPO sales

Verification that the account is eligible to purchase the IPO in written or electronic communication. Re-verification of eligibility every 12 months

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General exemptions for new issue rule

An account that includes a restricted person provided their combined ownership does not exceed 10%, issuer-directed sales that allow restricted person to purchase if the associated person’s immediate family is an employee or director of the issuer, PMs purchasing for a MF, a BD purchasing for its own account after making a bona fide public offering (i.e. in a firm commitment)

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What exemptions are there for borrowing from and lending to clients

without notification to firm - if client is immediate family member or if it is a financial institution regularly engaged in the business of providing loans (i.e. the RR wants to borrowing form a bank)
with notification to firm - the customer and RR are both registered with the same firm, a personal relationship exists, a business relationship exists outside the brokerage firm

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Who are the adults who the financial exploitation rules are for

persons 65 or older and any person 18 or older who are believed to have mental or physical impairment. if firm notices any of these signs such as dementia, the firm needs to place a temporary hold on disbursement of funds and should make a reasonable effort to get a trusted contact person

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Compensation rules and forgery

Payments are prohibited to unregistered individuals or firms, which includes referrals. A retired rep may continue to receive commissions on existing accounts if a bona fide contract is created

Roles for electronic storage for BDs books and records

1. prior to using electronic storage the BD must notify the SRO 2. If the electronic is other than CDs the BD must give the SRO 90 days noticed. It must include temper evident features to track and changes

If a temporary hold has been placed on an account, it will expire:

15 business days

Individuals who are responsible for managing specific areas of a member firm

Principals

Written supervisory procedures

1 brokers must establishe, maintain, and enforce written supervisory procedures, include responsibilities, date they became a supervisory, periodic review and approval of customer accounts, verifying the character, qualification, and experience of all registered persons on a continuing basis

Keeps information on registered reps, such as U4 and fingerprint card

Central Registration Depository (CRD)

what would subject a RR to a statutory disqualification

1. conviction within the last 10 years of any felony or securities related misdemeanor ( need to disclose longer than 10)2. Denial or revocation of registration by SEC or CFTC 3. Expulsion or suspension from membership with any SRO 4. Omitting a material fact on the application or report to an SRO 5. Maintaining a business relationship with a banned person

State registration (blue sky laws) if required the RR is tested on what

The uniform Securities Act - a model law that is created by North American Securities Admin Associate NASAA. Includes Series 63, Series 65, and Series 66

CPE requirements

1. Regulatory Element - applies to al RRs due on second anniversary and every 3 years after. Must be completed within 120 days of notice. Military are exempt from the 2 years inactive status limitation and CPEs are on hold 2. Firm Element - on going training as directed by your firm (needs to be evaluated annually)

Arbitration is a means to handle disputes. What disclosures are required with Arbitration

1. Right to sue or jury trial is waved 2. Discriminations or harassment are excluded and whistleblower statue 3. Arbitration awards are generally final and binding 5. arbitration panels may consist of either industry or public arbitrators

Form that is filled when registration is terminated and filed within 30 days and a copy is sent to RR

Form U5

requalification (retaking exams) is required if registration is terminated for more than how many years

what form is used to report disciplinary actions against representatives and firms and includes arbitration awards

what system allows investors to check the background and disciplinary history of their existing or prospective firm

BrokerCheck

Rule requires firms to provide customers with the following annually - FINRA's broker check hotline, FINRAs website, and a statement that an investors can sue brokercheck

FINRA Investor Education rule

Process by which customer information or customer complaints is removed from a RR's central record

Expungement

Annually MSRB member firms must disclose the following to customers

1. MSRB's website address 2. That they are registered with the MSRB and SEC 3. a statement regarding the availability of the investor Boucher

Customer complaints must be in written form

true

Office of supervisors jurisdiction (OSJ) maintain waht

customer complaint files including copies and a report to indicate actions taken

how long must complaints be maintained

4 years with quarterly reports made to FINRA

FINRA requires customer complaints and other incidents involving RRs by when

No later 30 days from discovery

Reporting rquirements

subject to customer complain for allegations of theft, violating securities laws, being named as a defendant by a regulator violation relating to securities, withholding commissions or fines in excess of 2.5k or being a defendant or respondent in an award or settlement of more than 15k

Requirements for outside business activites

1. excludes volunteer or charity work 2. must provide written notices to employee if being compensation and must update the Form U4 and information is disclosed through Broker check

Securities transactions that are executed by an associated person outside her association with a member firm, including public and private offerings. If compensated and RR must obtain employer's written permission and firm must record the transaction on its books. If not compensated - RR must provide employing firm with written notice and firms acknowledgement (written) of receipt

Private Securities Transactions

Violation of the private Securities Transaction rules

Selling away

Gift limit for RRs, whole sales, mutual fund distributions

$100 per person per year. gifts can be exceeded for events involving family relationships (weddings). normal business expenses do not violate rule, such as meals, sporting events, entertainment business expense (must be attended by giver) also excludes training and in-house incentives (cannot be 1 particular fund)

MSRB G-37

Political Contribution Rule "no pay to play rule" by municipal financial professional to politicians. Limits on contributions, if you can vote for the candidate can contribute $250 per candidate per election. If MFP cannot vote - no contribution can be made. 2 year ban on your firm doing negotiated underwriting business with issuer.

Records of gifts of any value must be maintained by member firms

true

Measurement of the output of goods and services produced within the US boarders regardless of origin of producer

GDP

measurement in change of prices of goods purchased by a typical consumer, key measurement of inflation

consumer price index CPI

Leads to a rise in prices of goods and services, usually accompanies higher interest rates

inflations

General decline in prices, interest rates tend to go down

deflation

reduction in the rate of inflation

disinflation

phases of the business cycle

1. expansion 2. peak 3. contraction / recession 4. trough

recession is how many quarters in a row

2 quarters

When the economy is in peak and inflation might occur what will the Fed do?

Tighten money policy. if economy is contracting, fed might follow easy monetary policy by bringing down interest rate and injecting money into the economy

Economic indicators that move before the business cycle, initial claims for unemployment, interest rate spreads, the S&{ index, manufactures new orders, permits

Leading

Economic indicators that move with business cycle, employees on non-agricultural payroll, personal income, index of industrial prodcutions

Coincident

Economic indicators that move after business cycles - duration of unemployment, average prime rate charged by bank, change n CPI for services

Lagging

interest rate charged by commercial banks to their best corp clients

Prime rate

interest rate that is set by the fed when member banks borrow

Discount rate

rate charged for an overnight loan of reserves between banks (rate that banks charge eachother)

Federal Funds Rate

the rate charged by commercial banks to brokerage firms with securities as collateral

call money rate

stocks that move with the business cycle, includes constructions, transportation, machine tool companies, auto

Cyclical

stocks that are resistant to recession, examples, tobacco, utility, food, alcohol

Defensive

stocks that grow faster than industry average - pay low to no dividends, riskier

growth

stocks that trade at low prices relative to the companies fundamentals,

value

market capitalization of stocks

1. nano-cap below 50m 2. micro cap 50m-300m 3. small cap 300m-2b 4. mid cap 2-10 5. large cap - more than 10 bil

who implements fiscal policy?

Presidency and congress

Keynesian policy

Cut taxes and expenditures, believes in fiscal policy with government intervention

Monetarist policy

Use Monetary policy (controlled by fed)

Tools of the red

1. Discount rate 2. Reg T for margin 3. reserve requirements for banks 4. federal open market committee (buy or sell treasury securities through primary government dealders)

to stimulate / easy the economy what will the fed do

Buy securities and lower interest rates

rising interest rates in the US will normally accompany the strengthening of what

the US dollar

system of recording all of a country's economic transactions with the rest of the worth over a specific period

Balance of Trade

as interest rates rise, the economy will normally be in which phase (

expansion (CPI rises - inflation rises - interest rates rise)

As inflation increases, bond prices will?

Decrease ( interest increase resulting in Bonds decrease)

Risk inherent in all securities due to market fluctuation

Market Risk

Risk that the value of a fixed income investment will decline to a rise in interest rate

Interest Rate Risk

Risk that the purchasing value of the dollar will fall

Inflation risk

Risk that a significant event will cause a substantial decline in the market

Event Risk

Measures the volatility of an asset relative to the entire market.

Beta

A stock's beta is compared to the beta of what?

S&P 500 which is always 1, if s stock's beta is more than 1 - its expected to outperform the market when market is up and is more volatile

risks that are unique to s specific security and can be managed through diversification

unsystematic risk

risk that a company may perform poorly causing a decline in the value of the stock

Business risk

Risk that new regulations may have a negative impact on an investments value

Regulatory risk

Risk that political event outside US could impact domestic markets

political risk

risk from lack of marketability (like DPPs and hedge funds) risk that an investment cannot be bought or sold quickly

liquidity risk

risk that an investor will lose the invested capital (lower for bonds)

Capital risk

Risk that a bond may not repay its obligation (treasurys do not have this)

Credit risk

Risk that when converting an investment that is made in a foreign currency might decline when converted into US dollars

Currency risk

Risk that new laws may have a negative impact on an investments value

Legislative risk

Risk of passing on the opportunity of making a higher return on another investment

Opportunity risk

Risk that interest rates will fall and semi-annual coupons will be reinvested at a lower rate. zero coupon bonds eliminate this

Reinvestment rate

risk that mortgages will be paid off early due to lower interest rates resulting in reinvestment in lower yielding investments

prepayment risk

Passive (strategic) asset allocation

1. Buy and hold - maximizes transaction costs and tax consequences 2. Indexing - maintaining investments in companies that are part of a major stock 3. Systematic Rebalancing - buying and selling assets periodically to keep portfolio closer to its strategic allocation

Tactical (active) asset allocation

assumes market is inefficient, involves altering the asset mix in anticipation of changing economic conditions / events

Involved making the same periodic investment regardless of share price over a fixed period of time

Dollar cost averaging

Products used to hedge risk

1. Equity options to protect individual stocks 2. Index options can protect an entire portfolio 3. Currency option can protect against exchange rate risk