Study Flashcards
Us government issues underwritten via
Competitive bid
Us agency securities are underwritten via
Negotiated offering
MSRB rules. The following records must be kept for specified time periods
Trade comparisons
Customer account statements
Customer complaints
Not official statements.. accessed in EMMA
Coincident economic indicator
Person income
Index of industrial production
Employment levels
Leading economic indicator:
M2
Unemployment
Stock prices
Durable goods orders
Lagging economic indicator: past
Corporate profits,
Consumer credit to income levels
Employment duration
CMOS quoted
Yield spread, like government bonds
RANs
Unfounded
Source of temporary financing
Funded debt=
Long term corporate bond issues
Bond buyer revdex
25.revenue bonds with 30 years to maturity, rated A or better
Variable rate notes
Also know as reset notes
Rate of interest that is reset periodically, usually weekly based upon a recognized interest rate index that usually consists of treasury issues
Adjustment bonds
Corporate bonds that are used in reorganization’s with interest payable only if the corporation hits a specified earnings target
VC funds
Venture capital fund
- a private placement limited partnership open to ONLY wealthy investors that makes private equity investments in privately held start up companies
- only available to wealthy accredited investors
BDCs
Business development company
- a registered investment company that makes private equity investments in start up companies.
- listed and trade in an exchange
- available to the general public
Tax swap
Sell muni bond in which he has a capital loss and immediately reinvest the proceeds in another muni bond.
- gives investor a tax deductible capital loss
- muni purchase MUST be different that the one he sold at a loss, or it will be considered a wash sale
Maturity
Coupon rate
Issuer
2 of the 3 need to be different
Broadest measure if the market
Wiltshire index
Mutual funds must send their financial statements to shareholders
Semi annually
CDO
Collateralized debt obligation
- structured product that invests in CMO tranches.
- rated based in the credit quality of the underlying mortgages
- have underlying mortgage collateral that is backed by the credit huskily if those mortgages
Flow of funds as revenues are collected where do they go first?
Revenue fund… and then applied in sequence
Mutual funds
Impose a front end sales load
8 1/2% max fee allowed by FINRA
Contingent deferred sales charge
-imposed when the customer redeems tbe fund, fee is lower because fund is held longer encouring investors to keep money in the fund over the long term
No load= money market funds
Corporate bonds are quoted
Term bonds and are quoted on a percentage of par basis in 1/8ths with us the same as a “dollar” quote
Term bonds quoted
Percentage of par
Non contributory defined benefit retirement plan
Contribution amounts vary
Annual benefit payments are fixed
Larger contributions are made for older plan participants nearing retirement than for younger plan participants who have many years left until retirement
Defined contribution defined benefit
Contribution amount fixed.
The benefit depends on the investment results on the fixed contributions made and can vary
If market price and strike price at the same at expirations
What positions will result in a loss
Long call
Long straddle
“At the money” contracts will expire unexercised, and holder loses the premium, while writer gains the premium
ETNs
Structured product offered by banks that gives a return tied to a benchmark index.
Listed in a exchange and trade
Not an equity security.. debt security
Backed by faith and credit of issuing bank
In interest or dividend payments
Value grows as they are held based in the growth of the benchmark index with any gain at sale or redemption currently taxed at capital gains rates
=tax advantages as compared to conventional debt instruments
Broker dealers must send what semi annually to its customers?
Balance sheet
Subordinated loan amounts
Net capital computation
Do not need inventory amounts
Regulation M
tier 1, Tier 2, Tier 3
Tier 1 Daily trading volume of $1,000,000 Market float rate of $150,000,000 No restriction for trading prior to distribution Issue is too big for price manipulation
Tier 2
$100,000
$25,000,000
Restricted period is the business day prior to the effective date
Tier 3
Any other security not meeting these minimums is a tier 3 restricted period of 5 business days prior to the effective date
Deflation
Over a period of 18 months, prices of good and services decrease by 2% and market interest rates decrease by 3%
Call covenants that MUST be considered when computing the dollar price of a muni bond quoted on a yield basis
In whole call ONLY
What agencies may issue securities
FHLMC (federal home loan mortgage Corp)
FHLB(federal home loan bank)
TVA (Tennessee valley authority)
Highest investment grade rating
AAA
Lowest investment grade rating
BBB
Rule 144A
A QIB is an institutional investor with at least $100,000,000 of assets available for investment.
Individuals no matter how wealth are NOT QIBs!
*Permits the issuers to sell minimum $500,000 blocks of private placement securities to QIBs without SEC registration
Traded from QIB-QIB through PORTAL-only for 144A issues
(Qualified institutional buyer)
OATS=
Order audit trail system
- records of orders are require for all us equities markets. NYSE, AMEX, NASDAQ, OTCBB, OTC
NOT for CBOE… options.
Regulation SHO
Mandatory buy in provision
Require and up tick or up bid is rescinded
Prohibits naked short selling and requires exchanges to maintain a threshold list of hard to barrow securities.
If a threshold list security is sold short and the security is not delivered in settlement the rule requires that the security be bought in after 13 consecutive settlement days have elapsed from trade date
Difference between open end management company and closed ended management company
Capitalization
Open end funds continuously issue and redeem shares
Closed end funds have a one time stock issuance and the fund is closed to new investments
Stock power
Legal transfer document
Defense interval ratio measured:
Liquidity
Market risk
Risk of rising interest rates forcing the price of the bond to drop.
Longer maturities drop the fastest
Recourse
Added to basis since the partner is personally at risk for this
ETF
Exchange traded funds
Trade like any other stock
Bought and sold at the prevailing market price plus commission
Can be bought in margin and can be sold short
Accounts receivable turnover ratio
Annual net sales\year end accounts receivable
Primary purchasers of treasury securities
Investment companies
Broker dealers
Commercial banks
*not federal reserve banks
Fed funds rate
Average rate of member banks throughout the United States
Daily rate charged by member banks for overnight loans of reserves
Dividend payout ratio
Common dividends/earnings for common
First must deduct the preferred dividend from the net income for the earnings for common.
An offer of IPO shares made to an officer of a publicly held company:
“Spinning”
Prohibited if the purpose of the offer is to get investment banks business from that company
Accretion of bond discount
Increases reported interest income each year
Increases the bonds cost basis each year
Insiders:
Cannot sell their stock short (except to short against the box at year end to lock in a gain)
Forfeit any short swing profits (profit made in less than 6 months of holding the shares)
Reported within 2 business days of the trade to the SEC
High put\call ratio=
Oversold market
Market is ready to move higher
More puts than calls
Low put\call ratio
Overbought market
Market is ready to move lower
More calls than ours
Churning:
Excessive trading in a customers account.
RR has to have a reasonable basis for believing that a series of recommended transactions, even if suitable when viewed in isolation are not excessive and unsuitable for the customer when take together
Quantitative suitability
What is not defined as a security?
Fixed annuity
*element of risk not included
Non qualified deferred compensation plans
Employees have limited claim to plan benefits if the business fails
Benefits payable to employees at retirement are taxable
Board members are not elegy me for these plans, as they are not considered employees
No IRS approval
May be discriminatory and offered only to certain employees such as key executives.
Selling a mutual fund shares immediately below the dollar amount stated in the prospectus that would qualify an investor to receive a reduced sales charge is called
Breakpoint sale
Variable rate municipal bonds investments main advantage is?
*It’s price should remain relatively stable
No fixed coupon rate
Coupon is tired to a market rate
As interest rates rise the coupon is adjusted upward, as rates fall, the coupon is adjusted downward (same direction)
ADRs (American depositary receipts)
issued by large domestic commercial banks
facilitate U.S. trading/investors who want to trade in foreign securities
Gonna Mae
Freddie Mac
Fannie Mae
Mortgage
FCS (farm credit system)
National network of lending institutions that provides agricultural financing and credit.
Issues discount notes, floating rate bonds, and fixed rate bonds,
Maturity: 1-30 years
Not pass through investments
Issue short term notes and long term bonds
Proceeds are used to make loans to farmers
Interest is tax exempt at the state and local level
Federal tax
Indirect obligations of the US gov. Not directly backed
Index option cash settlement occurs
Next business day after option is exercised
Unrealized appreciation
Realized appreciation
???
What securities are typically sold with a legal opinion attached?
Municipal bonds
Legal opinion
Supplied by bond counsel
States that the municipal bond is legal and binding on the issuer, if tax exempt that opinion is stated as well
Exclusive to municipal securities
Tran
Tan
Ban
Short term funding used by municipalities.
What action would cause the SMA to increase
The market value of SHORT securities decreasing
*not long decreasing
Net revenue pledge. What is the first item that gets paid from the revenue received?
Operations and maintenance fund
Advantage of an oil and gas INCOME program, compared to other types of oil and gas programs
Lowest risk of capital
Income
Exploratory
??
Covered call
…
Long shares, long call
Covered put
Short shares, long put guess
Income strategies
??
Hedging strategies
??
stable market for options
Short spread
Volatile market for options
??
Long spread
What does DRP stand for
Disclosure reporting page
Primary distribution
When an existing, publicly traded corporation issued a large block of NEW shares to expand.
Not an IPO because it’s not the first time, but still a primary distinctions becuase they are new shares
IPO restricted persons
Spouses, parents, children, siblings and in laws, a person supported by the employee
Aunts, uncles, grandparents are excluded
Zero coupon bonds
Purchased at discount mature at par
Pay no interest
Receive more capital than invested=capital accumulation.
Avoid reinvestment risk
Not taxed deferred
Unless municipal there is phantom income= income not currently received but currently taxable
Target date fund:
For a change who wants to put money into an investment that can be left alone for a period of time until expected retirement.
Forms of business that allow for pass through of income and losses
Née constructions real estate direct participation programs
Oil and gas drilling DPP
S corporations
Churning
Trading that is excessive in frequency or size and does not serve and investment purpose.
Capping
Form of market manipulation that attempts to hold the price of the security down
