The trading process
order entry
execution
clearing
settlement
custody
order entry
The placing of a trade into the system either electronically or using a paper ticket
execution
the occurrence of a trade or fill in the secondary market (NYSE or Nasdaq)
clearing
agreement by executing firms as to the details of a trade
settlement
the swapping of securities for funds that completes the transaction between firms
custody and safekeeping
safeguarding of client firm assets after settlement
settlement date
the date on which the transaction must be completed (settled) between the broker-dealers representing the buyer and the seller
regular-way settlement for corporate securities (stocks and bonds)
two business days after the trade date (T+2)
regular-way settlement for municipal securities
two business days after the trade date (T+2)
regular-way settlement fro Treasury securities and options transactions
one business day after the trade date (T+1)
cash settlement
completed on the same day as the trade
can be used for any type of security
seller's option
gives the selling firm additional time beyond the normal two business days to make a good delivery
what's an example of a reason a transaction would use a seller's option?
when the seller needs additional time because of legal requirements, such as the removal of a legend from a stock certificate
when issued
A transaction made conditionally because a security has not yet been issued, only authorized. Determined by the National Uniform Practice Committee
What governs the timing of payment and delivery between member firms (settlements)?
FINRA's Uniform Practice Code
Corporate Securities in a cash or margin account
Settlement: T+2
Customer Payment: T+4
Municipal Securities
T+2
Exempt from Reg. T
U.S. Government Securities
T+1
Exempt from Reg. T
Option Trades
T+1
T+4
Securities Exchange Act of 1934
Reg. T
Uniform Practice Code
deals with settlement
establishes the requirements for good deliveries of securities
depository-eligible securities
those that may be deposited at the clearing agency for which ownership can be transferred through book-keeping entries rather than through physical delivery of certificates
CUSIP numbers
identifying numbers assigned to each maturity of an issue
good delivery requirement
good delivery requirements
CUSIP numbers
Endorsements and Assignments
Units of Delivery
Units of Delivery Stock Transactions
delivered in multiples of 100 shares
Two certificates for 250 shoes or one certificate for 450 shares
not good delivery
Units of Delivery Bond Transactions
$1,000 units or multiples
Amounts of $100 or multiples aggregating to $1,000 are acceptable
No denomination larger than $100,000
who has the authority remove a restrictive legend?
a transfer agent
restricted securities
securities that carry a restrictive legend are not considered to be in good delivery form
The process of cleaning the certificate (removing the legend) is accomplished under what rule?
Rule 144
opinion letter
needed by the transfer agent from issuer to remove legend
corporate actions
stock splits
exchange offers
stock buybacks
rights offerings
proxy notices
tender offers
spinoffs
mergers and acquisitions
stock splits (forward splits)
when the company issues more shares at a certain ratio to its existing stock
no immediate change in the value of an investor's holdings
why would a company choose to split its stock?
to decrease the price of its stock in order to make it more marketable
why would a company choose to do a reverse stock split?
to raise the price of its stock
reverse stock split
decreases in the number of shares and increases the stock's price proportionately
tax impact of stock splits and stock dividends
not taxable to the investor. the only action that must be taken is for the investor to adjust his per share cost basis in the security
tender offers
a person's or company's (including the issuer's) intent to buy a specific stock at a fixed price (normally above the current market price) in order to take control of the company or to gain representation on its board of directors
spinoff
spin off a business unit to existing shareholders
street name
the name of the broker-dealer
beneficial owners
persons who have security positions that are being held by a financial intermediary with which they do business
Non-Objecting Beneficial Owners (NOBO)
if beneficial owner gives permission to her broker-dealer to release her name and address to the issuer
Objecting Beneficial Owner (OBO)
if a client instructs her broker-dealer to keep her personal info confidential, it may not be provided to issuers
proxies
permission given by stockholders to someone else to vote on their behalf
Charging Issuers for Services
A member firm may charge issuers for forwarding materials to the beneficial owners
Charging Customers for Services
Safekeeping of securities, collection of dividends and interest, and exchange or transfer of securities
charges must be reasonably and cannot unfairly discriminate between customers