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Series 7 > Unit 1 & 2 > Flashcards

Unit 1 & 2 Flashcards

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Series 7 Top-off Exam flashcards
1
Q

Cash Account

A

Basic investment account. Fed’s Regulation T requires customer to pay in full no later than two days for securities purchased.
The following can ONLY be cash accounts: IRAs and other personal retirement accounts, 401K and other corporate retirement accounts, custodial accounts - Uniform Transfer to Minors Act (UTMA) account, Coverdell Education Savings Account (ESA)

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2
Q

Margin Account

A

Investment account where the broker dealer lends money to the client to buy securities. Greater risk because borrowed money must be repaid. Leverage is beneficial when security’s price is moving up but can result in larger losses if the price goes down. Customers must meet minimum requirements to open a margin account.

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3
Q

fee-based account

A

Charges a single fee (fixed or percentage of assets in then account). Appropriate for investors who engage in moderate activity. Investors must be given a disclosure doc before opening this account. Reduces risk of churning.

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4
Q

margin

A

the minimum amount of equity an investor must deposit to buy securities. % of current MV

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5
Q

commission-based chargers

A

Investors pay per trade. Appropriate for low activity

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6
Q

churning

A

excessive trades to generate commissions and benefit the broker

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7
Q

reverse churning

A

broker moves low activity clients to fixed fee accounts

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8
Q

wrap-fee accounts

A

for firms that provide additional advisory services (asset allocation, portfolio management, execution, administration. Single fee account, typically a % of assets managed. Firms offering these typically are require to register as investment advisers in addition to broker dealers.

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9
Q

prime brokerage account

A

customer/institution has a primer broker (PB) who provides custody, trading and other services (lending, margin financing, trade processing, cash management, ops support) while executing brokers (EB) execute trades. PB and customer enter written agreements as does the prime broker and the EB. PB provides trade confirmations and account statements. EB is responsible for compliance of trading rules. Advantage - centralizes master account with multiple brokers, able to net margin requirements, better for active traders.

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10
Q

prime brokerage account

A

customer/institution has a primer broker (PB) who provides custody, trading and other services (lending, margin financing, trade processing, cash management, ops support) while executing brokers (EB) execute trades. PB and customer enter written agreements as does the prime broker and the EB. PB provides trade confirmations and account statements. EB is responsible for compliance of trading rules. Advantage - centralizes master account with multiple brokers, able to net margin requirements, better for active traders.

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11
Q

DVP; RVP

A

Delivery vs. Payment; Receipt vs. Payment. Agreement typically for institutional accounts where payment for bought securities is made to the seller’s agent and/or delivery of securities is made to the buyer’s agent in exchange for payment at time of settlement. Cash on delivery settlement

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12
Q

Day trader

A

buys and sells on same day. Members must provide a risk disclosure, approve the account for day trading.

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13
Q

Pattern day trader

A

someone who executes 4+ day trades in a 5 BD time period. Min equity requirement = 25,000

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14
Q

individual account

A

one owner who controls the investments and can request distributions of cash or securities. Suitability is based off that individual.

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15
Q

joint account

A

2+ adults are co-owners with some control of the account. must sign joint account agreement in addition to new account forms. Requires signature of all owners and check made out to all names. Owners are called tenants. must have suitability info for all tenants. Suitability based on group not individual. Must put client interests first

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16
Q

JTWROS

A

Joint tenants with rights of survivorship. dead tenant’s interests transfer to surviving tenant. Common for spouses. Equal ownership. Checks and distributions must be payable/endorsed to/by all parties. Can be TOD

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17
Q

TIC

A

Tenants in Common. Dead tenants fractional share goes to the tenants estate. Common for non-married family members/friends. Ownership can be unequal.Checks and distributions must be payable/endorsed to/by all parties. Cannot be TOD

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18
Q

TIC

A

Tenants in Common. Dead tenants fractional share goes to the tenants estate. Common for non-married family members/friends. Ownership can be unequal.

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19
Q

community property

A

differs state to state. Joint ownership of property acquires during marriage is assumed for married couples and would be divided in certain states. some states include rights of survivorship. Property acquired before marriage isn’t joint and there is an exemption for inherited property and gifts

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20
Q

custodial accounts

A

1 owner but 2 names on account. Custodian and beneficial owner. Custodian can: buy/sell securities and other assets, exercise rights/warrants, liquidate, hold, trade securities; can use to support minor but not costs associated with raising a child. A minor is not a legal person. Parents have no control unless they are custodian. Donor can act as custodian. Irrevocable. minor can be beneficiary on more than 1 account and custodian can serve as custodian on more than 1 account as long as each only benefits 1 minor. Cash accounts only. Minor can sue custodian.

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21
Q

UGMA

A

Uniform Gifts to Minors Act. Adopted by the Uniform Law Commission in 1956. Gifts of money and securities to minors. Limited to cash (bank deposits), stocks, bonds, mutual funds, and other securities and insurance policies. Was widely replaced with UTMA in 1986. Only 1 state still has UGMA

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22
Q

UTMA

A

Uniform Transfer to Minors Act. Adopted by the Uniform Law Commission in 1986. More flexible - expands the types of property you can transfer to a minor.Although there are a few states that allow the custodial property to remain in an UTMA account until the minor reaches age 25, more than half of the states set the age of majority for UTMA at 21 instead of 18.

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23
Q

TOD

A

Transfer on Death. Upon pass all or some to 1 or more beneficiaries. no specific legal docs are needed. Beneficiary % can change. Avoids probate but not estate tax.

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24
Q

Sole proprietorship

A

Like individual account. gains or losses are that of the individual.

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25
Q

general partnership

A

unincorporated association of 2+ individuals. GP responsible for operations and debt. Easy to form and dissolve, not suited to large amounts of capital. P/L flow directly through to investors as passive income/loss for tax purposes. Avoids double taxing. Investment policy needs to consider collective objectives.

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26
Q

limited partnership

A

management and liability goes to GP and LP are passive and have liability limited.

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27
Q

LLC

A

Limited Liability Company. benefits of incorporation (limited liability)and tax advantage (flow through). LLC owners are members and not personally liable. suitability for all members. Unlimited # of members. Taxed once - no entity level

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28
Q

S Corporation

A

taxed like a partnership but limited liability. P/L passed directly to shareholders in proportion to their ownership. No more than 100 shareholders, no resident aliens, or more than 1 class of stock. suitability for all shareholders. Taxed once - no entity level

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29
Q

C Corporation

A

company is a separate entity from owners. preferred if lots of capital is needed. E&O shielded from personal liability for company’s debts/losses. Shareholders shielded from corporate creditors. income tax applies to entity not shareholder. Suitability only for company. Double taxed - distributions get taxes taken out at the entity and individual level when they get dividend.
- It is the C corporation where the owners contend with double taxation. The first tax is on the corporation’s earnings. After that, any dividends distributed to the shareholders are subject to tax.

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30
Q

new account form

A

record for each account with an individual customer. FINRA Rule 4512 requires: name, address, age, APs (if any), legal entity and name of authorized person(s); signature of partner, officer or manager accepting the account (customer does NOT sign); subject to trusted person contact rule - FINRA rule 2165 and contact info of that adult. SEC rule 17a-3 requires delivery of a copy of acct info within 30 days of opening & every 36 months thereafter. customers must verify and note any changes to info. Reasonable effort must also be made before the settlement of the initial transaction to get: tax ID or SS #, occupation, name/address of employer, if they are AP of another member (are they an insider?) but not needed to open the acct

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31
Q

CIP

A

Customer Identification Program. result of USA Patriot Act. Financial Inst and broker-dealers are required to: verify identity of any new customer (unexpired government issued ID), docs showing the entity like articles of incorporation, license, etc.; maintain records of info used to verify identity; does the person appear on OFAC as terrorists, specially designated nationals and blocked persons. prevent, detect and prosecute money laundering and terror financing. At a min. before opening an account the firm must obtain: name; DOB; address; SS# or tax ID; for non-US person at least 1+: taxpayer #, passport # and country, other gov issued doc. exemption for people waiting for SS#. CIP must have procedure for when firm cannot verify identity: when acct shouldn’t be opened, terms where customer can transact while BD verifies, when BD should close acct, when BD should file suspicious activity report

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32
Q

trusted contact person

A

rules 2165 and 4512 - AKA FINRA senior exploitation rule. Specified adult = age 65 or older or age or older who is impaired. Firm must make efforts to obtain info for trusted person. Firms can place temp holds (up to 55 business days) on acct

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33
Q

Reg S-P

A

Firm must provide privacy notices when acct is opened and annually. SEC to protect customer info (nonpublic personal info). Must provide reasonable opt-out in 30 day window (writing a letter is NOT reasonable). consumer only gets initial notice and customers get initial and ongoing notices.

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34
Q

POA

A

Power of Attorney. customer MUST file written authorization with BD giving another person access to acct.

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35
Q

Full POA

A

allows non-owner to: deposit or withdraw cash/securities and make investment decisions

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36
Q

Limited POA

A

AKA - limited trading authorization. allow non-owner to have some control. Doc specifies level of control. can enter buy/sell order but not withdrawal funds.

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37
Q

Durable POA

A

non-owner maintains power over the acct even if grantor is incapacitated. Upon death of grantor or durable POA the power is terminated. Orders enter after the time of death will not be accepted.

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38
Q

changes in acct name or designation

A

no change in acct names can be made unless the change is authorized by a qualified register principal designated by the member. Must be in writing and essential facts be documented and kept with customer records.

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39
Q

internal transfer

A

when moving money from one acct to another if to an acct where the the recipient isn’t a signatory, approval and documentation are needed

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40
Q

bulk transfer

A

BD can use a negative response letter to bulk move cash at NAV into a money market mutual fund. Limited to situations involving M&A of funds, changes of clearing members and exchanges of funds in sweep accts.

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41
Q

sweep acct

A

customer sells securities and proceeds are deposited to their acct. Cash is swept into a money market mutual fund where it earns income until it is withdrawn or or used to buy more securities

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42
Q

negative response letter

A

informs recipient of impending action and they must respond if they object. Do nothing = consent. Must include tabular comparison of nature and fees of each fund and comparative description of objectives and prospectus. Not activated until at least 30 days after the letter was mailed.

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43
Q

negative response letter

A

informs recipient of impending action and they must respond if they object. Do nothing = consent

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44
Q

tax-deferred

A

income tax on contribution amt is deferred to a later time, typically until withdrawal. tax on earnings is always deferred

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45
Q

qualified plan

A

employee sponsored plan: pension, 401K, 403b. contributions made with pre-tax dollars and earnings are tax deferred until withdrawal. Typically governed by ERISA

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46
Q

ERISA

A

Employee Retirement Income Security Act of 1974. regulates the establishment and management of corporate pension or retirement plans. Private sector plans

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47
Q

Qualified

A

contributions made with pre-tax dollars and earnings are tax deferred until withdrawal. apply to either qualified plan or traditional IRA. contribution limits vary and are adjusted periodically. benefits: employer contributions are current deductible expense, made with pretax money, all earnings are tax deferred until withdrawal, ERISA offers some protections

48
Q

nonqualified

A

employer sponsored plan (deferred compensation plan) with no tax advantage. Advantages: pays out when employee is in lower tax bracket and employer can discriminate between employees

49
Q

deductible contribution

A

contribution to a qualified plan (401K, traditional IRA) that is pretax and deductible on the tax return

50
Q

nondeductible contribution

A

contribution to a qualified plan or IRA (traditional or Roth) which is made with after tax dollars. no tax benefit for contribution

51
Q

employee sponsored retirement plans

A

qualified and non qualified. a taxable distribution is always taxed as ordinary income. if all contributions came from employer (noncontributory plan) the employee’s cost basis is 0. if all employee contributions are pretax, the employee’s cost basis is 0.

52
Q

employee sponsored retirement plans

A

qualified and non qualified. contribute

53
Q

non qualified plans

A

favors certain employees (executives). allows for discrimination and not subject to ERISA

54
Q

deferred compensation plan

A

non qualified plan. Employee agrees to defer receipt of current income in favor of payout at retirement. Board members are not eligible. Employee at lower tax rate at retirement. Risky since employee has no right to benefits if the firm fails and may forfeit if they leave before retirement.

55
Q

payroll deduction plan

A

non qualified plan. employee authorizes employer to deduct specified amt for retirement. Deducted after taxes. 401k is NOT a payroll deduction plan

56
Q

payroll deduction plan

A

non qualified plan. employee authorizes employer to deduct specified amt for retirement. Deducted after taxes. 401k is NOT a payroll deduction plan

57
Q

IRA

A

Individual Retirement Account. Created to encourage ppl to save for retirement. Anyone with earned income can open an IRA. Traditional and Roth. Can deduct contributions from taxable income. Must contribute between January 1 and April 15 of the following year - no extension beyond April 15. Excess contributions are subject to a 6% penalty tax if excess is not removed by the time taxes are filed. Should be relatively conservative, factoring in age and risk, long-term growth

58
Q

SECURE

A

Setting Every Comment Up for Retirement Enhancement act enacted in 2019. Got rid of 70.5 restrictions. RMD begin at 72 not 70.5. exceptions to 10% early withdrawal fee - 5,000 during first yr of child’s life (or adoption). Rule 529 max of 10,000 per child. Expanded coverage to part time employees (500 hours a yr for 3 yrs)

59
Q

traditional IRA

A

max. tax deductible annual contribution of the lesser of 6000 per individual, or 12,000 per couple or 100% taxable compensation for taxable year 2019.

income and capital gains earned in the acct are tax-deferred until funds are withdrawn

distributions without penalty after 59.5 and must begin by April 1 of the yr following the person turning 72. Before 59.9 is subject to 10% penalty. Exceptions for: death, disability, 1st home buyer, certain medical expenses. Not taking the required min distribution (RMD) by yr following 72 (April 1) incur 50% penalty

60
Q

Compensation for IRA Purposes

A

-wages, salary, tips
-commission and bonuses
-self employed income
-non taxable combat pay
-alimony - only for divorces through 12/31/18. rule changed after that and alimony is no longer considered income

61
Q

Not considered compensation for IRA purpose

A

-captial gains
-interest and dividend income
-pension or annuity income
-child support
-passive income from DPPs

62
Q

EGTRRA

A

Economic Growth and Tax Relief Reconciliation Act of 2001. Allows ppl 50+ to contribute more than the scheduled max. to their IRA to catch up. Can go in either traditional or Roth. $1000 amt

63
Q

spousal IRA

A

if one person has little to no earned income but filed jointly, a spousal IRA can be opened. Same limits and tax treatment as other IRAs

64
Q

Roth IRA

A

created by the taxpayer relief act of 1997. contributions are NOT tax deductible but earnings are tax free if withdrawn at least 5 yrs following the initial deposit if the account holder is 59.5+, money is used for 1st time home purchase (up to 10,000), if the acct holder died or has become disabled. Regular contributions are always withdrawn tax free bc they are made with nondeductible contributions. Max contribution is 6000 (7000 if 50+). Eligibility based on Adjusted Gross Income

65
Q

AGI

A

Adjusted gross income. bottom of Form 1040. Take all earned income and deduct traditional IRA contributions, alimony (pre 1/1/2019) self employment tax, penalties from early withdrawal from a savings acct

66
Q

roth conversion

A

traditional IRA to Roth is allowed but might be tax consequences. Amt is converted to ordinary income but if directly rolled over within 60 days there is no 10% fee for those under 59.5. If some contributions were made with after tax money, IRS proportionally determines how much is nontaxable

67
Q

roth conversion

A

traditional IRA to Roth is allowed but might be tax consequences. Amt is converted to ordinary income but if directly rolled over within 60 days there is no 10% fee for those under 59.5. If some contributions were made with after tax money, IRS proportionally determines how much is nontaxable

68
Q

IRC

A

Internal Revenue Code. Legislation that defines tax liabilities and deductions for US payers.

69
Q

IRA 60 day rollover

A

IRA owner takes temporary possession of funds to move the acct to another custodian. Once per 12 month period and must be completed within 60 CALENDAR days from withdrawal. 100% must be moved.

If rollover is from qualified plan, payor must withhold 20% as withholding tax. Owner still must rollover 100% including the fund withheld. this 20% gets refunded on your next tax refund

70
Q

IRA direct rollover

A

distribution from employer sponsored retirement plan to an IRA (one type of plan to another). money isn’t seen by owner and moves directly between administrators

71
Q

IRA trustee to trustee transfers

A

AKA - IRA transfer. account assets are moved between custodians. Unlimited transfers and no 20% tax withholding or 60 day requirement

72
Q

IRA trustee to trustee transfers

A

AKA - IRA transfer. account assets are moved between custodians. Unlimited transfers and no 20% tax withholding or 60 day requirement

73
Q

Education IRA/Coverdell ESA

A

created by the taxpayer relief act of 1997 with a $500 contribution limit. In 2002 were renamed Coverdell and limit is $2,000 per child. Contributions can come from parents or other adults. contributions are not tax deductible but all earnings are taxed deferred. distributions are tax free if taken before age 30 and are used on education. if funds are not used by 30, the funds must be distributed and subject to 10% penalty on earnings or rolled over to another family member. Ppl with disabilities are exception from the rules surrounding age 30.

74
Q

tax sheltered annuities (TSA) (403b plans)

A

available to:
-public educational institutions
-tax exempt orgs (503c3)
- religious orgs
Meant to encourage retirement saving. subject to 10% penalty if withdrawn before 59.5. Funded by elected employee deferrals. Deferred amt is excluded from employees gross income and earnings are tax free until distribution. A written salary reduction agreement must be executed bwtn employer and employee. Distributions are 100% taxable. Previously, annuities were the only investment option. In 1974 opened up to mutual funds. 85% + is still invested in annuities.

75
Q

Section 457b plans

A

deferred compensation plan for local, state and state agency employees, and other tax exempt orgs (churches, hospitals, unions). Amt deferred is not reportable for tax purposes, therefore employees receives a deduction annually for the amt deferred. Exempt from ERISA. Not required to follow non-discrimination rules. Any employee or contractor of governmental org can participate. May not be rolled in IRA but no penalty for early withdrawal. Can have a 457 and a 403b or 457 and 401k and make max contributions to both. Also can have IRA and 457. This plan must be funded - hold plan assets in trusts or custodial accts

76
Q

corporate sponsored retirement plans

A

pension plans, profit-sharing plans, 401K. must be established under a trust agreement. Trustee is appointed for each plan and has fiduciary responsibility.

77
Q

corporate sponsored retirement plans

A
78
Q

defined contribution plan

A

includes: money purchase pension plans, profit-sharing plans, 401K. Value depends on amt contributed, interest and capital gains. plan participant assumes risk.

79
Q

defined benefit plan

A

provide specific retirement benefits like fixed monthly income. regardless of performance, benefits are paid as defined in the contract. Plan sponsor assumes risk. formula takes into to account yrs of service, ave salary in 5 yrs before retirement. Plan’s annual return must be signed by actuary. No affected by participant’s sex.

80
Q

contributory plan

A

employer and employee make contributions. 401K

81
Q

noncontributory plan

A

only employer contributes

82
Q

Profit sharing plans

A

established by employer to have employees share in profits. do not need formula but if there is one, typically contributions are a fixed % of profits. to be qualified plan must have substantial and reoccurring contributions. Offer flexibility and easy to use

83
Q

401K plans

A

employee directs employer to deduct % of salary. Matching contribution from employer up to certain amt. Contributions made with pretax dollars. Dollar cost averaging.

84
Q

Roth 401K plans

A

contributions are funded using after tax dollars but earnings are tax free if withdrawn at least 5 yrs following the initial deposit if the account holder is 59.5+. 2 accts: 401K and Roth 401K. Employer contributions must go in 401K plan and are taxable at withdrawal. Employee can contribute to either but can’t transfer between accts. no income restrictions on the Roth 401K. Require withdrawal starting at 72.

85
Q

SEP-IRA

A

Simplified Employee Pension. qualified individual retirement plans for self employed and small businesses. eligible if: at least 21, worked for employer 3 out of last 5 years, has gotten at least 600 in compensation from employer (for 2020)

86
Q

SIMPLEs

A

Saving Incentive Match Plans for Employees. For businesses with fewer than 100 employees who earned 5000+ during the last year. employees made pretax contributions up to limit. Employer matches contributions. catch up contributions up to 3000 for those 50+. Immediate vesting.

87
Q

Keogh Plans

A

retirement plan for self employed. AKA - HR 10 plan

88
Q

Employee stock purchase program (ESPP)

A

contributions 1-10% of salary from payroll deduction. Calculated on pretax salary but taken AFTER tax. Get company stocks at a discount at the end of purchase period (~6 months).

89
Q

stock options

A

give employee right to buy a specific # of shares of employers common stock.

90
Q

ERISA provisions

A

ERISA only applies to private sector (corporate) plans.

Participation: 21+, performed 1 yr of full time service (1000+ hrs)
Funding: fund must be segregated from other funds.
Vesting: when employer contribution belongs to employee
Communication: plan doc in writing. Annual statement.
Nondiscrimination: al; employees must be treated impartially through uniformly applied formula.
Beneficiaries: must be named

91
Q

HSA

A

health savings account. tax deductions on contributions. employer contributions may be excluded from gross income. contributions remain in acct until you use them. interest and other earnings are tax free. distributions are tax free if you pay qualified medical expenses. Eligible if: high deductible health plan, no alt health coverage. can’t be claimed as a dependent on someone else’s return. No joint HSAs.

92
Q

high deductible health plan (HDHP)

A

higher annual deductible than typical plans, max limit on the sum of the annual deductible and out of pocket expenses. out of pocket expense include copayments but do not include premiums

93
Q

suitability

A

determination made by reg rep as to whether a particular security matches a customer’s objectives and financial capability. Reg rep must have enough info to make a reasonable judgement

94
Q

know your customer rule

A

regulation requires that every member must use reasonable diligence when opening/maintaining an account to know and retain essential facts about every customer

95
Q

investment constraints

A

limitations or restrictions that are specific to your client - liquidity, time horizon, ethical choices/perferences, taxes, laws & regs

96
Q

preservation of capital

A

avoid drop in value of investments with bank insured CDs or fixed income. exposed to inflation (purchasing power) risk

97
Q

speculation

A

can be listed as an investment objective. Looking for higher returns for higher risk. Might use margin, short sell, options, penny stocks

98
Q

investment objectives

A

preservation of capital, income, growth (capital appreciation), speculation

99
Q

FINRA Rule 2111

A

proposed in 2009, effective in 2011.
- reasonable basis suitability: recommendation must have reasonable basis, recognize risk/reward
- customer specific suitability: recommendation is appropriate for the specific investor
- quantitative suitability: no excessive trading

100
Q

opening an options account

A

must have a designated supervisory person with knowledge about options that approves the acct. special options disclosure document. Know about investor’s investing experience and history. Special options agreement - describes risks and rules; must be signed and returned within 15 days after the acct has been approved.

Steps
1. obtain essential facts
2. options disclosure doc
3. manager approves acct
4. enter initial order
5. customer signs and returns agreement

101
Q

opening a margin acct

A

3 required docs with signature due no later than the first trade
1. credit agreement - mandatory. discloses terms, interest calculation and situations where interest rates will change.
2. hypothecation agreement - mandatory. collateral for the loan are the securities and this allows the BD to have a lien on the customer’s margin securities.
3. Loan consent form - optional. if signed gives firm permission to loan customer margin securities to other customer or BDs, usually for short sales

also requires a risk disclosure form -before opening the acct, firm must risk disclosures and annually thereafter

102
Q

discretionary accts

A

customer authorizes BD or reg rep to make investment decisions - which security, number of shares, whether to buy or sell.

need written authorization (POA) and acct is accepted in writing fry the firm.

Customer can still enter orders if they want

oral grant of time or price discretion is only good for that business day - anything longer must be in writing.

discretion must be indicated on order in all cases

officer or partner must approve order in writing but not necessary before entry

records must be kept of all transactions

no excessive trading or churning

acct must be checked regularly

103
Q

churning

A

excessive trading in a customer acct to generate commissions

104
Q

fiduciary accts

A

fiduciary - a person who has legal power to act on behalf of another person (trustee, executor, administrator, guardian, custodian, receiver in bankruptcy, conservator)

Must be evidence of fiduciary’s appointment and authority. Except no docs are needed for UGMA/UTMA.

Discretionary authority typically makes one a fiduciary.

obligated to follow Uniform Prudent Investor Act (UPIA)

105
Q

corporate acct

A
  • type of business acct
  • reg rep must establish: business’ legal right to open an investment acct; indication of any limitations; who will represent the business in transactions

firm must obtain a copy of the corporate charter (proof it exists) and corporate resolution (authorizes the opening of the acct and officers).

106
Q

partnership acct

A
  • type of business acct
  • must complete partnership agreement stating which partners can make transactions.
  • if margin acct must disclose limitations
  • amended version must be obtained annually if changes have been made
107
Q

sole proprietorship acct

A
  • type of business acct but opened like an individual acct
108
Q

Regulation BI (best interest)

A

Regulation BI uses the phrase “a call to action” to describe the essence of a recommendation and there is no “call” in that statement. The firm or associated person must use language explicitly suggesting that the customer follow a certain behavior for it to be a recommendation. Regardless of the reason, telling a customer to sell specifically identified stock is a recommendation. Reallocating a portfolio means selling some assets and buying others. Although we tend to think of recommendations as a buy or a sell, Regulation BI points out that an explicit recommendation to hold a security (or securities) is a recommendation.

109
Q

types of common stock

A

authorized, issued, outstanding, treasury

110
Q

authorized stock

A

of share of stock the corporation may legally issue. Found in Charter and can increase amount with a charter amendment by stockholder vote

111
Q

Issued stock

A

authorized stock that has been sold to investors. authorized stock that doesn’t get sold to investors is unissued shares that can be hold for: raising new capital for expansion, paying stock dividends, exchanging common stock for outstanding convertible bonds or preferred stock

112
Q

outstanding stock

A

includes any shares that a company has issued and are in the hands of investors. Analysts care about outstanding stock. if the company gets it back, it isn’t outstanding

outstanding stock = issued stock - treasury stock

113
Q

Treasury stock

A

stock a corporation has issued and subsequently required. Can hold it indefinitely, can reissue or retire it.

114
Q

Treasury stock

A

stock a corporation has issued and subsequently required. Can hold it indefinitely, can reissue or retire it.

115
Q

unsolicited

A
  • When a customer wants to buy a specific municipal bond and possesses all of the bond’s material information, Municipal Securities Rulemaking Board Rule G-19 allows the representative to execute the order and mark it unsolicited. The representative may not recommend any municipal bond without first knowing the customer’s financial objectives and tax status.

Series 7 (19 decks)

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