unit 1

Question 1

cash settlement

Answer 1

requires delivery of securities from the seller and payment from the buyer on the same day a trade is executed

must be on the spot for delivery.

both parties must agree before the trade takes place for it to occur

Question 2

fill or kill order

Answer 2

an instruction to fill the order immediately or kill the order completely

Question 3

immediate or cancel order

Answer 3

if only a portion of the order can be filled, it is, and the remaining unexcited portion is canceled

Question 4

all or none order

Answer 4

AON orders must be executed in their entirety or not at all, can be day orders or GTC orders.

they can be held for the day or beyond

Question 5

GTC order

Answer 5

valid until executed or canceled.

automatically canceled if unexecuted at the opening of the day or at the close of the day

Question 6

day order

Answer 6

valid only until the close of trading on the day

Question 7

market order

Answer 7

buy or sell; it is executed immediately at the best available price

Question 8

who trades in the OTC market?

Answer 8

market makers

Question 9

stop limit order

Answer 9

stop price does not become a live working order until the stock trades at our through the stop price

Question 10

shelf registration

Answer 10

this allows issuers to register a new issue security without selling the entire issue at once

can sell limited portions of the issue over a two year period and for WKSI companies, a three year period without reregistering the security

Question 11

underwriter

Answer 11

acts as a BD and works with an issuer to bring its securities to the market and sell them to the public

Question 12

SEC act of 1933

Answer 12

protects investors by:
- requiring registration of new issues (unless exempt)
- requiring an issuer to provide full and fair disclosure about itself and the offering
- requiring an issuer to make available all material information necessary for an investor to judge the issues merit
- regulating the underwriting and distribution of primary issues
- providing criminal penalties for fraud in the issuance of new securities

Question 13

preliminary prospectus (red herring)

Answer 13

can be used as a prospecting tool to gauge investor interest and gather indications of interest.

POP (final price) is not required for the preliminary prospectus, must be available to any customer who expresses interest

Question 14

primary market transaction

Answer 14

if the issuer of a security is receiving funds from an offering

Question 15

prospectus delivery rules (an investor that buys a new security in the secondary marketwise be entitled to the following timelines)

Answer 15

• for IPOs of NMS securities - 25 days
• for APOs of NMS securities - 0 days
• for IPOs of non-NMS securities - 90 days
• for APOs of non NMS securities - 40 days

access to a prospectus on the SEC website is sufficient to meet delivery requirements

Question 16

regulation D

Answer 16

SEC does not require registration of an offering under Regulation D as long as there are no more than 35 non accredited investors

amount of capital that can be raised is unlimited

Question 17

Rule 147

Answer 17

offerings that take place entirely in one state are exempt from registration when the issuer has its principal office in the state and all purchasers are residents of the state

• it receives at least 80% of its income in the state
• at least 80% of the issuers assets are located within the state
• at least 80% of the offering proceeds are used within the state
• majority of company’s employees work in the state
• may not be resold to nonresidents of the state for 6 months after the initial purchase

Question 18

carrying firm

Answer 18

• carries customer accounts and accepts funds and securities from customers
• have the capability to do trade executions
• clear and settle transactions
• take custody of customer funds and securities
• handle all back office tasks such as sending trade confirmations

Question 19

bid

Answer 19

highest amount someone is willing to pay for the security

Question 20

when an option trades

Answer 20

settlement is the next business day (t+1)

Question 21

equity option exercise

Answer 21

transaction must be completed by the second business day (t+2) after the exercise

Question 22

equity security

Answer 22

also known as participating preferred

Question 23

ADR

Answer 23

domestic security representing a foreign security in US markets

Question 24

bought stock in a foreign company at x and then sold it for more than x, what are the tax consequences of this?

Answer 24

taxed as a capital gain

Question 25

ABC Corporation cumulative preferred stock would pay dividends in what order?

Answer 25

The in arrears dividends, current preferred dividends, then common dividends