Series 7

FINRA: Correspondence

Correspondence, which is defined as any written or electronic communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period.

Can you purchase securities prior to registration? Settlement?

Cannot purchase securities prior to registration (against Securities Act of 1933), but can purchase prior to settlement (when-issued)

FINRA: Institutional communication

Any written or electronic communication that is distributed or made available ONLY TO INSTITUTIONAL INVESTORS.This would not include any internal communication by the broker-dealer. This would not include any internal communication by the broker-dealer.
A

FINRA: Retail Communication

Any written or electronic communication that is distributed or made available to more than 25 retail investors within a 30 calendar-day period

FINRA: Public appearances

Situations where employees associated with a broker-dealer or sponsor participate in a television or radio interview, seminar, or forum, or make a public appearance, or engage in speaking activities that are unscripted and are not otherwise considered ret

Do retail communications need be approved? How about Institutional communication?
How about correspondence?

Retail communications need to be approved by a registered principal prior to first use IF IT MAKES A RECOMMENDATION OR PROMOTES A PRODUCT OR SERVICE (correspondence falls under same as retail)
Institutional communication does not have to be approved by a

Can a broker-dealer be compensated for retired RRs for sales made prior to retirement?

Yes, if they have a contract is signed by the retired RR for continued commissions, or trails. Can also make payments to the RR's widow or beneficiary for existing business, not new ones.

Who is a restricted person for a IPO?

FINRA Rule 2790 defines a restricted person as any FINRA member firm, a broker-dealer and its employees, finders or fiduciaries (i.e. attorneys and accountants) of the managing underwriter, or immediate family members of any of those persons. New issues m

What is a issuer-directed security?

ISSUER-DIRECTED SECURITY: Provide an exemption for certain individuals under the New Issue Rule to participate in an IPO. Under this provision, issuers may direct securities to the parent company of the issuer, the subsidiary of an issuer, and employees a

List order of highest yield: corporate, muni (G.O), muni (Rev.), Treasury

Corporate, Treasury, Muni (Rev.), Muni(G.O.) (lowest yield b/c exempt from federal income tax)

What are the rules of the FINRA suitability obligations?

1. The reasonable-basis obligation requires a member firm and an RR to have a reasonable basis to believe that the recommendation is suitable for at least some investors. If the firm or its RRs do not understand the product, it should not be recommended t

What are S&P's rating for bonds? Best and worst rating for munis?

AAA, SP-1 (best) and SP-3 (worst)

What is a reverse convertible security?

Bond that can be converted at the discretion of the ISSUER. Will have shorter terms of maturity and higher yields b/c of risk involved for investors.
The underlying asset may be an equity security unrelated to the issuer, or a basket of stock, or an index

What are exchange-trade notes (ETNs)? Can it be purchased on margin or sold short?

Type of unsecured debt security that has risked tied to the creditworthiness of the financial institution backing the note.
If the issuer's financial condition deteriorates, it can impact the value of the ETN negatively, regardless of how its underlying i

What is a inverse ETN?

Inverse ETN would pay the opposite of the benchmark that is being tracked and would be suitable for a person interested in short-term trading

What are capital appreciation bonds?

A capital appreciation bond (CAB) has a similar structure to a zero-coupon bond. CABs do not pay periodic interest and are NOT suitable for investors who seek income.

How are government bonds taxed? How are munis taxed?

Government bonds taxed only federally; munis only taxed at state / local level

1/2 point equivalent?

1/2 of 1% on $1000 par value

What happens after a decision is made at a FINRA hearing panel? NYSE?
Who else uses an arbitration panel?

Decisions of a Hearing Panel regarding complaints can be appealed to the National Adjudicatory Council.
Board of Arbitration of the NYSE.
ARBITRATION DECISIONS ARE FINAL for both NYSE and FINRA.
RR that have disputes with employers

What bonds require voter approval?

A general obligation bond would require voter approval since it is backed by the full faith and credit of the issuing municipality. A bond backed by ad valorem or real estate taxes is a type of general obligation bond.

What is a special tax bond?

A special tax bond is financed by a tax other than an ad valorem tax, such as a tax on cigarettes, liquor, or gasoline, and would not require voter approval. A special tax bond is a type of revenue bond that is backed only by a specific tax source, such a

What is a mortgage bond?

A mortgage bond is a type of corporate bond. A bond secured by a mortgage on one or more assets. These bonds are typically backed by real estate holdings and/or real property such as equipment. In a default situation, mortgage bondholders have a claim to

What is a certificate of participation?

A certificate of participation (COP) is a revenue bond backed by a lease payment that does not require voter approval.

What is a fill or kill order?

When bonds are offered firm for one hour with a five-minute recall, the offering Dealer A cannot sell the bonds to anyone but Dealer B without giving Dealer B the first opportunity to take the bonds. When Dealer A called Dealer B and said, fill or kill, D

What is the 11-bond index?

The 11-Bond Index contains general obligation bonds with an average rating on S&P of AA+ and on Moody's of Aa1. Includes the average yield on 11 muni G.O bonds with 20-year maturities

What is the 20-bond index?

The 20-Bond Index has an average rating on S&P of AA and on Moody's of Aa2. Includes the average yield on 20 muni G.O bonds with 20-year maturities

1 Mil

$.001

7.00 basis

7% (basis = yield)

What is a discount bond priced to?

Priced to matuity

What back subordinated / unsecured bonds?

Secured only by the full faith and credit and no specific collateral

What is the Bond Buyer Muni Bond Index?

The Bond Buyer Municipal Bond Index is based on the prices of 40 recently issued, long-term general obligation and revenue bonds. The index is calculated by taking the price estimates and adjusting them to a 6.00% coupon. The Municipal Bond index is publi

What is the Bond Buyer 25RB index?

Average yield on 25 revenue bonds with 30-year manturities

What happens if a state resident earns interest on bond from within state? How about out of state?

Most states also exempt interest from bonds issued within their state from a resident's state and local income taxes. However, if a state resident earns interest from an out-of-state municipal security, that interest is usually subject to state and local

How do you find the true muni bond yield (7%) if corproate rate is 35% and state rate is 7%?

7% / (1-42%)

What is a money-market fund?

Money-market funds (SHORT-TERM DEBT) are normally no-load, open-end investment companies. Their portfolio consists of short-term, fixed-income securities such as Treasury bills, commercial paper, and bankers' acceptances, muni notes.
BENEFITS ARE SAFETY A

When should you invest in a variable annuity?

Generally, an annuity should only be considered after a person contributes the maximum amount to the qualified plans that is sponsored by his employer since it provides for deductible contributions, tax-deferred growth, and the potential for a company mat

If I place an order to buy 1,000 shares of XYZ at $30 and XYZ declares a 50% stock dividend, what happens?

1,500 shares (to reflect dividend) at $20
Total value before must equal value after the dividend

What is a BDC?

A business development company (BDC) raises capital by selling securities to investors and is similar in structure to a closed-end investment company.
A BDC will use the money it raises to invest in private companies, small and developing businesses, and

What are the three basic types of funds?

A "closed-end fund," legally known as a "closed-end company," is one of three basic types of investment company. The two other basic types of investment companies are mutual funds and unit investments trusts (UITs).
Any closed-end fund that is issued by a

What is a unit investment trust?

An investment company that offers a fixed, unmanaged portfolio, generally of stocks and bonds, as redeemable "units" to investors for a specific period of time. It is designed to provide capital appreciation and/or dividend income.
A unit investment trust

What is difference b/w long-term and short-term gain?

Long-term gain - security held for >1 year (taxed at capital gains - 20%); short-term gain - security held for <1 year (taxed at ordinary income)

What is a straddle?

Buying a put and call with the same strike price and maturity - expect volatility
Max Gain - Unlimited
Max Loss - Premium paid

What is a short straddle (writing a straddle)?

Selling a put and call with the same strike price and maturity - expect neutral / stable market
Max Gain - Premium paid
Max Loss - Unlimited

What is the 30-day visible supply of muni bonds?

The 30-Day Visible Supply is all municipal bonds that are expected to be brought to market in the next 30 days. It is computed daily and includes all competitive and negotiated offerings of G.O bonds that are anticipated to be brought to market. However,

What is a repo?

A form of short-term borrowing (capital) for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day.
For the party selling the security (and agreeing t

What is TIPS?

TIPS - treasury inflation protected securities
The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whicheve

What happens if FRB increases discount rate?

If the FRB increases the discount rate, the general level of interest rates increases. The prices of long-term bonds decreases more in price than the price of short-term bonds (duration risk).

Fed Funds, Reserve Requirement , Reg T and Fed Funds rate: which does the Fed NOT control?

The fed funds rate is the rate charged by one bank with excess reserves (which are held at the Fed) to another bank needing overnight loans to meet reserve requirements.
CALCULATED ON A DAILY BASIS
Although it is greatly influenced by the Fed, it is the o

What must mutual funds do to charge the maximum 8.5% sales charge?

In order to charge the maximum 8.5% sales charge, mutual funds must offer breakpoints and rights of accumulation.

What happens when FOMC sells treasuries? What happens when FOMC purchases treasuries?

Securities used are Treasury bills. FOMC wants to influence money supply.
Purchase treasuries: increase money supply
Sell treasuries: reduce money supply

What is the placement ratio?

The placement ratio is published weekly by The Bond Buyer. It expresses the amount of bonds sold by new issue syndicates as a percentage of the total amount of new issues brought to market during that week.

What would be the yields between a bond paying interest annually vs. semiannually?

The bond paying interest annually will have a yield to maturity that is less than the bond paying interest semiannually. Yields to maturity assume a reinvestment and compounding of interest. The compounding of interest will be greater for the bond paying

What is bond power?

A separate legal form that authorizes the transfer of ownership of a registered bond from one party to another. The bond power is essentially a substitute for the assignment on the back of the bond. It formally appoints an attorney-in-fact to transfer the

What is a second mortgage bond?

Second mortgage bond: A type of subordinate mortgage made while an original mortgage is still in effect. In the event of default, the original mortgage would receive all proceeds from the liquidation of the property until it is all paid off. Since the sec

What are joint accounts for?

Joint accounts are for individuals; a custodian account is not considered a joint account

What is the Federal Farm Credit System composed of?

The Federal Farm Credit System is composed of the
Banks for COOPERATIVES
Federal INTERMEDIATE CREDIT Banks
Federal LAND banks
Provide agricultural financing

What are marketwide trading halts?

Marketwide trading halts are based on the S&P 500 Index and are calculated daily (not monthly).
A trading halt on one exchange applies to all exchanges that trade the same security. A Level 1 Market Decline (7%) and a Level 2 Market Decline (13%) will hal

What happens if you are afraid of the Dollar appreciating?

Cannot trading options on US dollar.
Therefore, buy put on Euro (Euro depreciates) or other currency. If afraid of Euro appreciating, buy Euro Call.

What is the third market?

Trading by non exchange-member brokers/dealers and institutional investors of exchange-listed stocks. In other words, the third market involves exchange-listed securities that are being traded over-the-counter between brokers/dealers and large institution

What is CQS?

The Consolidated Quotation System (CQS) is the electronic service that provides quotation information for stock traded on the American Stock Exchange, New York Stock Exchange (stock, warrant, or bond), and other regional stock exchanges in the United Stat

What happens to a RR during a registration period ("cooling off period")?

During the registration period, a registered representative may not send research reports to clients nor accept orders and payments for new issues from clients. The registered representative may send a preliminary prospectus and receive indications of int

Who enforces the MSRB rules?

MSRB only designs rules, does not enforce them.
� The SEC or FINRA for broker-dealers
� Comptroller of the currency for federal banks
� The FRB for state banks that are members of the FRB
� The FDIC for member banks of the FDIC

What is a gift of substantial or material value?

According to industry rules, a gift of more than $100 is considered substantial or of material value
Member firm personnel may not give, or permit to be given, a gift of material value exceeding $100 per recipient per year to personnel employed by another

What is the D/E ratio?

D/E = Total Debt / (Common stock + P.I.C + R.E)

What is dividends received deduction?

When firm invests cash in a stock and receives dividend in the future.
<20 ownership: 70% reduced so 35 * (1-70%)
20 - 80%: 80% reduced
>80%: 100% reduced

What are Eurodollars? What are Eurodollar bonds?

Eurodollars are defined as U.S. dollars on deposit in foreign banks, not just in Europe
Eurodollar bonds typically ARE SOLD OUTSIDE THE US, BUT MAY TRADE IN THE US AFTER A SEASONING PERIOD OF 40 DAYS AFTER ISSUANCE

What is a pattern day trader?

Pattern day trader is a term defined by FINRA to describe a stock market trader who executes FOUR (4) (or more) day trades in 5 business days in a margin account.
The minimum equity requirement for a pattern day trader is $25,000. Day-trading buying power

Who has a fidelity bond?

Every broker-dealer is required to have a fidelity bond, which provides insurance in the event of a fraud judgment against the broker-dealer.

How do you sale a limited partnership agreement?

The sale of a limited partnership interest is executed by means of a subscription agreement (TELLS WHO IS REQUIRED TO SIGN THE DOCUMENT). It is signed by the limited partner, but is not final until the general partner signs the agreement which signifies t

Who assumes the liability of the limited partnership?

The general partner is the member of the limited partnership who assumes liability for the debts of the entity and is usually concerned with its overall management (has to contribute 1% of the capaital)
The general partner has the most risk in a limited p

What is the highest rating Moody will assign to commercial paper?

P-1 (also called Prime 1) is the highest rating that Moody's will assign to commercial paper. Intermediate ratings are P-2 and P-3. Speculative commercial paper would receive a rating of NP (not prime).

What is the Wilshire Associates Equity Index?

The Wilshire Associates Equity Index shows the market value in dollars of roughly 7,000 NYSE, NYSE MKT (formerly NYSE Amex), and Nasdaq stocks.
It contains the most stocks of the choices listed.

What is stagflation?

Stagflation is defined as a prolonged period of a high rate of inflation together with a high rate of unemployment. This does not happen too often since high unemployment usually leads to a period of low inflation or even deflation (falling prices) and th

What is front-running?

Placing proprietary orders (orders for the account of the RR or broker-dealer) ahead of customer orders is a prohibited practice that is referred to as front-running. An institutional buy order has the potential of moving the market price of a security hi

What is churning?

Excessive trading by a broker in a client's account largely to generate commissions. Churning is an illegal and unethical practice that violates SEC rules and securities laws. While there is no quantitative measure for churning, frequent buying and sellin

What is a wash sale?

An Internal Revenue Service (IRS) rule that prohibits a taxpayer from claiming a loss on the sale or trade of a security in a wash sale. The rule defines a wash sale as one that occurs when an individual sells or trades a security at a loss, and within 30

How can a customer trade options?

A customer needs a new account agreement, an options account agreement, and approval of options trading to trade options.

What is a Coverdell Education IRA?Is it only for college?

Anyone may contribute to a Coverdell Education IRA for a child, but the total contributions to the account are limited to $2,000 per year.
Coverdell - "qualified education expenses" so K-12
Account doesn't transfer to minor when he is of age (only UTMA an

What is a simplified employee pension plan (SEP IRA)?

A simplified employee pension plan (SEP IRA) does not allow the employee to make contributions. SEPs are funded by employer contributions only. (have vesting provisions - usually used for part-time) (USED FOR SMALL BUSINESSES)
This is different than for K

When can IRA withdraws begin? what does catch-up provision start?

IRA withdrawals may begin at any age, but a penalty may be assessed if withdrawals begin prior to age 59 1/2 (10% penalty). Withdrawals in traditional IRAs must begin by age 70 1/2. There is no required minimum distribution (RMD) for Roth IRAs.
Catch-up p

Discuss the tax implications of taxes on IRA.

The earnings on an IRA account grow tax-deferred. If an investor maintains an IRA account that has pretax and after-tax contributions and makes withdrawals, the IRS considers withdrawals to come from both sources. Therefore, a portion of the withdrawal is

What does the SIPC do?

SIPC (Securities Investor Protection Corporation) provides protection for customer accounts in the event of a broker-dealer's failure. Nonprofit corporation (NOT GOVERNMENT AGENCY - created under Securities Investor Protection Act 1970) designed to protec

What does the registered options principal do?

The registered options principal (ROP) is specifically responsible for the firm's compliance program with respect to its options activities. (Establishing option training programs for registered representatives and ROPs)
The ROP performs an audit function

What is Rule 144?

According to Rule 144, an affiliated person (e.g., the president of a company) must hold unregistered (restricted) stock for at least six months before it may be sold and follow trading volume rules.
If a client is selling XYZ shares pursuant to Rule 144,

Can minors open accounts with broker-dealers?

Minors are not permitted to open accounts with broker-dealers since they are not legally responsible and could reject certain transactions once they reach the age of majority. The age of majority is actually determined by the state. In most states, the ag

When do brokerage firms send customer statements for active accounts? For inactive accounts?

Brokerage firms send customer statements monthly for accounts with activity during that month. For inactive accounts, statements must be sent at least quarterly.

What is a REIT?

Real estate investment trusts (REITs) offer investors a stable income based on the income produced by owning a diversified portfolio of properties and/or mortgages that charge rental income.
Most REITs trade on an exchange, offering investors liquidity (i

What happens when securities are inherited?

When securities are inherited, the recipient's cost basis is the market value of the securities at the time of the deceased's death. The recipient's holding period for the stock will be long-term, regardless of the deceased's actual holding period.

What is raw land?

Raw land will satisfy an investor's need for an investment that has the potential for capital appreciation without producing currently taxable income. (MOST RISKY)
However, raw land is not eligible for depreciation deductions or tax credits nor does it ha

What does an investment bank do? S&T? Purchase and sales department?

The investment banking department assists issuers who need to sell new securities to the public. The sales and trading department is involved in the secondary market trading of securities. The purchase and sales department and the reorganization departmen

What is the 5% mark-up policy?

The 5% Markup Policy does not apply when a security is being issued with a prospectus (NEW ISSUES, mutual funds, registered secondaries), mutual funds, or for municipal securities.
Securities quoted on Nasdaq would be the only choice given for which the 5

When is a propsectus required?

A prospectus would be required for a primary distribution as well as a registered secondary distribution.

What is the Interbank?

The Interbank market is an unregulated over-the-counter market in which currencies of different countries are bought and sold. Foreign currency transactions may settle on a spot or forward basis. Spot transactions settle in two business days from the trad

What is free-riding?

In a cash account, you must pay for the purchase of a stock before you can sell it. If you buy and sell a stock before paying for it, you are free riding, which violates the credit extension provisions of the Federal Reserve Board. If you free ride, your

What is the put/call ratio?

The put/call ratio is a technical market indicator and is found by dividing the volume of all put transactions by the volume of all call transactions on a daily basis. Technical analysts view the put/call ratio as a contrarian indicator. The higher the ra

What happens to a bond purchased at premium? What adjustments need to be made?

When a municipal bond is purchased at a premium, the bond's premium must be amortized to find an adjusted cost basis. If the bond is sold above the adjusted cost basis, the result is a capital gain. If the bond is sold below the adjusted cost basis, the r

What are bank-qualified bonds?

Bank-qualified bonds are issued by small municipalities and, to qualify, a municipality may only issue up to $10,000,000 annually. This is done to encourage commercial banks to invest in locally issued municipal securities. Commercial banks that purchase

What is the COBE?

Chicago board options exchange - regulated by SEC

What is a LEAP?

A LEAP is a long-term option that can have an expiration of up to 39 months. If option is held for >12 months, then gain or loss is long-term (@ capital gains)
Long-term anticipation securities (LEAPS) may be exercised on any day prior to expiration (Amer

How do you tax short sale gains or loss?

The IRS does not recognize a holding period on a short sale of a stock or an opening sale (writing) an option

What is a T-bill?

T-Bill: short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months

What is a banker's acceptance?

Short-term debt instrument issued by a firm that is guaranteed by a commercial bank. Banker's acceptances are issued by firms as part of a commercial transaction. These instruments are similar to T-Bills and are frequently used in money market funds.
Bank

What kind of securities trade without accrued interest? How about on the secondary market?

Many money-market securities such as Treasury bills and bankers' acceptances trade at a discount and are, therefore, purchased without paying accrued interest. Zero-coupon bonds (e.g., Treasury STRIPS) do not pay periodic interest and are traded without a

What are treasury bonds?

Treasury bonds are quoted in 32nds of a point, and are then calculated as a percentage of the par value ($1,000). The difference between 98.4 and 98.8 is 4/32. One point equals $10, so 4/32 or 1/8 of a point equals $1.25. Traded with accrued interest
A ma

What is a step-up CD? Step-down?

A long-term (maturity exceeding one year), step-up CD offers an investor an interest rate that is initially lower than current market rates will pay for that maturity period. The rate will then be adjusted upward at predetermined intervals established by

What is there not a secondary market for?

There is no secondary market for federal funds (overnight borrowing between banks and other entities to maintain their bank reserves at the Federal reserve), repos (repurchase agreement), or U.S. savings bonds, mutual fund

What is the federal funds rate?

The effective federal funds rate is the daily average rate that commercial banks (FEDERAL RESERVE MEMBER BANKS) charge another bank throughout the country for overnight loans held at the Fed.
It is influenced, but not set by, the Federal Reserve Board. An

What is Commercial Paper?

Secured, short-term debt instrument issued by a corporation, typically for the financing working capital.
Maturities on commercial paper are usually 270 DAYS. Commercial paper has a maximum maturity of 270 days in order to be exempt from the registration

What is a certificate of deposit?

A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks and are insured by the FDIC. The term of a CD g

What is Keynesian economic Theory / supply-side econoomics / monetary theory?

Keynesian economic theory looks at the demand side of the marketplace. It states that government intervention in the marketplace (by using such measures as expenditure programs) is necessary for controlling the economy.
Supply-side economics states that t

What is the Dow theory?

The Dow Theory, which is followed by some technical analysts, states that a major reversal in the market has occurred when both the Dow Jones INDUSTRIAL Average (DJIA) and the Dow Jones TRANSPORTATION nAverage (DJTA) break their trends.

What do increased i.r. and increased costs, and low unemplyoment mean?

Expanding economy (higher costs = higher demand for goods), so Fed will try to combat inflation

What does the Federal Farm Credit bank do?

The Federal Farm Credit Banks issue consolidated systemwide notes that are issued at a discount (as with T-bills) and are non-interest-bearing.
Bonds are also issued that are interest bearing (have a stated interest rate). Interest is subject to federal t

What are direct obligations of the US government?

Treasury bills and Treasury notes are direct obligations of the U.S. government. GNMAs (Government National Mortgage Association) are guaranteed by the U.S. government as are Federal Home Loan Bank securities. FNMA (Federal national mortgage association)

What are Federal national mortgage association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC)?
What is GNMA and Sallie Mae?

Fannie Mae and Freddie Mac are government-sponsored enterprise, not backed by US government. Buys/guarantees mortgages and packages /secures them to form mortgage backed securities
GNMA: guarantees only securities backed by single family and multifamily l

What is a savings bond?

Savings bonds are debt securities issued by the U.S. Department of the Treasury to help pay for the U.S. government's borrowing needs. U.S. savings bonds are considered one of the safest investments because they are backed by the full faith and credit of

What is participating preferred stock / cumulative preferred stock?

Participating preferred stock allows the owners to share in the extraordinary earnings of a company, "special dividend if the Company performs well"
Essentially, participating preferred has a stated dividend, but these shareholders may receive more than t

What does the board of directors?

Declare dividends
Can also do stock split but must have shareholder approval

What is ex-dividend?

Ex-dividend: A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be given ex-dividend status if a person has been confirmed by the company to receive the dividend payment.
The owner of a ca

Which bond has the most interest-rate risk?

The bond with the most interest-rate risk or price volatility is the one with the longest maturity and lowest coupon.

What are STRIPS issued at?

They are issued at a discount.

How would you be bullish on bonds?

If you anticipate a decrease in interest rates

What is the additional bonds test?

The additional bonds test sets a minimum level of coverage of debt service for interest and principal for all outstanding bonds and for future debt.
Debt Service = INTEREST + PRINCIPAL
The additional bonds test protects original bondholders against the di

What are rate covenants?

Rate covenants insure that rates will increase in line with costs to insure proper revenues for the maintenance of the facility or project and payment of the debt service

What is refunding?

Refunding is used to lower interest expense on bonds through the issuance of new bonds at lower coupon rates. The proceeds of the new bond sale would be used to repurchase the already outstanding high-coupon bonds.
Advance refunding means that proceeds fr

What is the feasibility study?

The feasibility study should, among other things, outline sources of revenue: user charges or tolls, concessions and fees, special taxes, and rental or lease payments. Another potential source of revenue is legislative appropriation, or tax dollars grante

What are Direct Pay Build America Bonds (BAB)?

BABs are a type of municipal bond that pays taxable interest but the Treasury will reimburse 35% of the interest paid on the bonds to the issuer, which reduces the cost of borrowing. This would allow municipal issuers to compete with corporate issuers whe

What does the issuer's bond counsel do?

The issuer's bond counsel writes the legal opinion (makes debt legal).
It states that the interest is exempt from federal taxation and that the issue is valid and legal

What is the notice of sale?

An official notice of sale is a document created by the issuer to invite competitive bids for the underwriting of municipal bonds.
It announces the issuer's intention to sell an issue and invites securities firms to compete for the issue. All information

Who sets the underwriting concession? What is the spread in a muni bond? What is a takedown?

Set by underwriting syndicate.
The spread in a municipal bond underwriting is the gross profit earned by the syndicate. It is the difference between the amount the issuer receives for the bonds and the public offering price for the bonds.
The takedown is

What is the compensation the syndicate will receive for its risk on selling group sales (additional takedown)?

A municipality is issuing 40,000 bonds at a public offering price of $1,000. The manager of the underwriting syndicate receives $1.50 per bond. The total takedown is $6.50 per bond and the selling concession is $4.00 per bond.
$2.50 per bond - this is the

A municipality is issuing 50,000 bonds at a public offerings price of $1,000. The manager of the underwriting syndicate receives $1.25 per bond. The total takedown is $8.75 per bond and the selling concession is $5.00 per bond.
What amount will the issuer

$990 per $1000

What happens with a dividend and capital gain distribution from a mutual fund? What happens if shares are exchanged for another mutual fund shares?

Bond interest, stock dividend, short term capital gain taxed at ordinary income.
Capital gain DISTRIBUTION and selling out of mutual fund for gain is at capital gain.
Dividends and distributions may be reinvested automatically in additional shares, but ST

What is the MSCI EAFE (Morgan Stanley Capital International Europe, Australasia, and Far East)?

The MSCI EAFE (Morgan Stanley Capital International Europe, Australasia, and Far East) Index follows the equity performance of the developed markets but excludes the U.S. and Canada. The FTSE Index mostly follows the stocks of companies trading on the Lon

What is the advance-decline index?

The advance-decline index is a measurement of advancing stocks versus declining stocks over a specified period. It is a good indicator of the strength of a bull or bear market.
A/D Line = (# of Advancing Stocks - # of Declining Stocks) + Previous Period's

What is short interest?

The term short interest refers to the amount of a company's shares of common stock that have been sold short and have not yet been covered (closed out). An increase (not decrease) in short interest has historically been considered a bullish indicator by a

What is the odd lot theory?

A technical analysis theory/indicator based on the assumption that the small individual investor is always wrong. Therefore, if odd lot sales are up - that is small investors are selling stock - it is probably a good time to buy.

When is a withholding tax applied?

A withholding tax of 20% may apply when a person moves funds from one retirement account to another.
Withholding tax can be avoided when funds are transferred from one retirement account to another.
There are two methods of transfers, one in which the fun

Are securities from Puerto Rico/ commonwealth US exempt from tax?

Securities issued by Puerto Rico, through a special Act of Congress, are exempt from federal, state, and local taxes (triple-tax-exempt).

Are equities tax deferred? Then if somebody wants tax-deferred growth, willing to accept modest risk and is scared about inflation what is a good investment?

No, since the investor is concerned about inflationary risk, wants tax-deferred growth, and is willing to accept a moderate degree of risk to his initial investment, variable annuities are the most appropriate investment. If the investor did not want a ta

What is the CQS?

The Consolidated Quotation System (CQS) provides subscribers with bid/asked quotations for securities listed on national exchanges, including quotes from OTC market makers in those securities (the third market).

What happens to options when there is a reverse stock split?

TUV Corporation has executed a reverse stock split. When a corporation's stock has a reverse or forward stock split, all associated options contracts are adjusted.
When a reverse stock split occurs, the number of shares underlying each option will be redu

If you are given quarterly EPS, what do you need to do?

Need to multiply by 4 to get yearly EPS to find PE ratio

What happens when a customer buys and sells securities in a restricted margin account on the same day?

A customer has a restricted margin account. The customer sells $7,000 worth of securities and on the same day buys $5,000 worth of other securities. The Regulation T margin requirement is 50%. The customer may:
a. Withdraw cash equal to the margin require

What is a restricted margin account?

If the equity in a margin account drops below the Regulation T (or house) requirement, the account becomes restricted.
But not enough for a margin call.

How can you get around Rule 144A restrictions on volume and holding-period?
What is a qualified institutional buyer?

Under Rule 144A of the Securities Act of 1933, the owner of securities obtained through a private placement may resell those securities to a qualified institutional buyer (QIB) without the volume and holding-period restrictions of Rule 144. Qualified inst

What is a time draft?

Type of foreign check that is guaranteed by the issuing bank, but that is not payable in full until a specified amount of time after it is received and accepted. Time drafts are a type of short-term credit used for financing transactions of goods in inter

WHat is regulation NMS?

'Regulation NMS' National Market System (NMS) is a set of rules passed by the Securities and Exchange Commission (SEC), which looks to improve the U.S. exchanges through improved fairness in ELECTRONIC price execution as well as improve the displaying of

Who can discipline a RR employed by a broker-dealer?

Both the SEC and FINRA may discipline a registered representative employed by a broker-dealer for fraudulent securities activities. The MSRB has no enforcement power.

Can mutual funds or annuities be recommended for short-term investments or trading vehicles?

Under industry rules, mutual funds or annuities may not be recommended as short-term investments or trading vehicles. The fact that a product is no-load does not change this SRO prohibition.

What is a mortgage-backed security?

Mortgage-backed securities (MBS) may be issued by a U.S. government agency, such as the Government National Mortgage Association (GNMA or Ginne Mae), or a government-sponsored enterprise (GSE), such as the Federal National Mortgage Association (FNMA or Fa

What is a CMO?

Type of MBS.
CMOs pay monthly income made up of interest, which is taxable, and principal, which is a tax-free return of capital
Due to the structure of a CMO, a fluctuating amount of principal is returned monthly, not at maturity, which makes CMOs differ

What is a biggest risk of CMOs?

The risk that an investor will receive her principal earlier than projected (prepayment risk) is the most important risk concerning mortgage-backed securities such as CMOs. Although all fixed-income securities will have interest-rate risk, prepayment risk

What is the PSA model?

The cash flows, future payments that a bondholder will receive, determine the market price of the bond. Collateralized mortgage obligations (CMOs) have uncertain cash flows due to the prepayments (early retirement) of mortgages. Prepayment risk is the ris

What are different tranches of CMOs?

The separate classes of a CMO are known as tranches.
The longest maturity is frequently called the Z-tranche or the accrual bond, and does not receive interest or principal payments until the shorter maturing tranches have been retire
PAC tranche: A class

What is the PAC tranche?

The planned amortization class (PAC) is a type of CMO that is designed for more risk-averse investors and provides a predetermined schedule of principal repayment, as long as mortgage prepayment speeds are within a certain range. This greater predictabili

What is a penny stock?

A penny stock, according to SEC rules, is a stock that sells for less than $5.00, that is not listed on Nasdaq or the NYSE.
A stock quoted on the OTC Bulletin Board or OTC Pink Market (stocks not listed on NYSE or Nasdaq) (Pink Sheets) that has a bid pric

When selling your house, what are you taxed at?

Tax on home is on assessed value, not resale value

What happens to dividend and interest paid on foreign securities?

Dividends and interest paid to a U.S. investor on foreign securities may be subject to a withholding tax by the country from which they were paid
U.S. citizens and corporations owning foreign stock may receive dividends from which foreign taxes have been

Is there a secondary market for REITs? How are prices determined? What fund does a REIT trade similarly too?

There is a secondary market for REITs (real estate investment trusts). The vast majority of REITs trade on the NYSE with prices determined by supply and demand. Closed-end funds are funds that are often bought and sold on the NYSE that trade in a similar

What are general obligation bonds?

General obligation bonds are debt instruments issued by states and local governments to raise funds for public works
What makes general obligation bonds (or GO bonds for short) unique is that they are backed by the full faith and credit of the issuing mun

Discuss the UGMA (uniform gifts to minors act) and UTMA (Uniform Transfers to Minors Act)? Can you have one account for two children?

Account becomes the property of the child upon reaching the age of majority is true of a UGMA (uniform gifts to minors act) or UTMA (Uniform Transfers to Minor Act) account
Shields tax
In both UTMA and UGMA accounts, the earnings are reported based on the

What is a custodian bank?

The custodian bank is responsible for the safekeeping of the securities owned by a MUTUAL FUND. The custodian bank has no responsibility relating to the management of the fund's portfolio.
A custodian bank, or simply custodian, is a specialized financial

What is a Keogh plan? What kind of jobs do you have to do to be able to set one up?

A Keogh plan allows a maximum annual contribution of 100% of compensation or $53,000, whichever is LESS. (For 2014, the limit was $52,000.) This question is asking the amount deductible. The amount deductible is limited to the LESSER of 20% of compensatio

What kind of account can ETF be purchased in?

ETFs may be purchased in a cash or margin account. This applies to long positions in regular ETFs, inverse ETFs, or leveraged ETFs. If an investor sells short an ETF, this transaction must be executed in a margin account similar to selling short any equit

Can you sell short in cash account?

No.

When do listed equity options stop trading? When do all options stop trading?

Beginning February 15, 2015, the expiration date for equity options is the third Friday of the expiration month, at 11:59 p.m. Eastern Time.
All equity options stop trading on the third Friday of each month

What happens if you don't pay the Reg T?

When a customer purchases securities and fails to pay by the Reg T payment date (within 2 business days following settlement), the brokerage firm will sell out the securities and freeze the account for 90 days.

When is the Reg T payment date?

Reg T payment date (within 2 business days following settlement)

What is laddering a portfolio?

The approach is referred to as the laddering of a portfolio. When the earliest bonds mature, the proceeds are then reinvested at the long side (i.e., longest maturity) of the ladder. This investor reinvests the proceeds of the bonds that mature in year on

What is TRACE and what kind of bonds does it serve and what kind of bonds does it not serve? What is RTRS?

TRACE - CORPORATE BOND MARKET + government-sponsored enterpise (trade reporting and compliance engine) was created to provide greater transparency in the corporate bond market.
TRACE DOES NOT SERVE 144A SECURITIES NOR DOES IT SERVE MUNI SECURITIES
Transac

What does client purchasing a security (not mutual fund)?

Pays for security: offer (ask) price + commission
Sell security: Bid price - commission

Are MFPs allowed to make political contributions?

Municipal finance professionals (MFPs) are allowed to make political contributions of up to $250 per person to candidates for whom they are permitted to vote.
Any contribution made to a candidate for whom they are not entitled to vote would be a violation

What is yield to worst?

Yield to Worst: Yield to worst is calculated on all possible call dates. It is assumed that prepayment occurs if the bond has call or put provisions and the issuer can offer a lower coupon rate based on current market rates.
If market rates are higher tha

When will YTM = YTW? and when not?

YTM = YTW when market rates are higher than current yield (discount).
YTW will be less than YTC if the market rater is lower and bond may be called and lower than YTM (premium).

What does "qualified annnuity" mean in terms of the IRS?

Qualified" is a descriptor given by the Internal Revenue Service (IRS) to indicate that the qualified annuity may be eligible for tax deduction. When a distribution is made, it is subject to income tax.

What are violations of the Secuirites Act of 1933?

The other actions listed are in violation of the Securities Act of 1933: if a registration statement has not been filed with the SEC. A registered representative may not inform a customer that the customer may receive as many shares as desired. Nor may th

What is recapture?

Recapture is a situation where tax benefits previously taken should be paid back to the government. This is obviously not a benefit of a limited partnership.
Downside to Limited partnership for DPP include recapture where the tax law requires you to recap

What are benefits of limited partnerships?

Benefit of limited partnership: limited liability, flow-through of income and expense, tax credits

What can limited partners not do?

Benefit of limited partnership: limited liability, flow-through of income and expense, tax credits
Limited partners (PASSIVE INVESTORS) have the right to receive their portion of income and losses, examine books and records, and make loans to the partners

What are general partner violations to the limited partnership? What are not violations?

A general partner is not permitted to compete with the limited partnership. Accepting a payment not to compete would be a conflict of interest. Selling property to the partnership is a definite violation of the conflict of interest provisions, as is commi

What are the different types of orders that can be placed within a syndicate for a new issue?

There are four types of orders that can be placed with a syndicate.
A presale order is any order placed before the syndicate that actually purchases the issue from the issuer
A group order is a situation where all members of the syndicate share in the pro

How do you allocate bonds in a new issue?

When allocating bonds in a new municipal issue, presale orders normally have first priority. This is followed by group net, designated, and then member orders. The 5 MM in group orders and 5 MM in designated orders will be allocated. There are no bonds le

What is the difference between underwriting syndicate and selling group?

The underwriting syndicate makes a (financial) commitment to the issuer to purchase the entire offering. If the syndicate cannot resell the offering at the public offering price, it may suffer a loss. While the selling group also participates in the sale

Does a customer who provides an IOI have an obligation to buy securities?

No

What happens to dividends and capital gains from a tax-exempt fund?

Dividend income from a tax-exempt fund is not taxed at the investor's marginal rate. (Note, however, that capital gains distributions from a tax-exempt fund are taxable.)

How are investment advisers comepnsated?

Investment advisers are often compensated based on a percentage of assets under management. For example, mutual fund managers are usually compensated in this way.

What happens when account is established under the Uniform Gifts to Minors Act?

Accounts established under the Uniform Gifts to Minors Act
Taxes are the responsibility of the minor
Custodian makes all investment decisions in the account
Account must reflect the minor's Social Security number

WHat must a RR do when disclosing certain information and promoting 529 plans? What could happen in her home state?

Under MSRB rules, an RR is required to disclose certain information when promoting 529 plans.
The RR must discuss the risks and costs involved with the different types of plans, must provide a disclaimer stating that, prior to investing in a plan, the cus

What do MSRB rules require a municipal security principal to do?

MSRB rules require a municipal securities principal to APPROVE ALL all transactions in municipal securities.

What kind of information does MSRB regulate?

The MSRB regulates the yield that must be disclosed on a client's confirmation.
The yield disclosed is the lower of the yield to maturity or yield to call. In other words, the yield to worst. If a bond is callable and trading at a discount, the lower of t

What kind of care should be taken in designing websites?

Care should be taken in the design of Web sites.
The name of the member firm with whom the registered representative is associated must be displayed
While the use of the FINRA logo is NOT permitted, the registered representative's association with a FINRA

How does FINRA define a complaint?

FINRA defines a complaint as any written statement of a customer, or any person acting on behalf of a customer, alleging a grievance involving the activities of those persons under the control of the member in connection with the solicitation or execution

How are REITs regulated? What must they receive when making a purchase?

REITs are regulated as securities under the Securities Act of 1933 (NOT UNDER INVESTMENT COMPANIES OF 1940). An investor purchasing a REIT in the primary market must receive a prospectus.

What is a saucer pattern?

A saucer is a chart pattern used by technical analysts that indicates that a stock has formed a bottom in its trading cycle and is ready to rise. The bottom of the saucer pattern is a bullish indicator for the stock. The reverse of the saucer pattern is t

What are support and resistance levels?

Support is the bottom (not letting prices fall below); Resistance is the top (not letting prices go above
Go below support = bearish
Go above resistance = bullish

What is pegging?

A practice of an investor buying large amounts of an underlying commodity or security close to the expiry date of a derivative held by the investor. This is done to encourage a favorable move in market price.

what is a super sinker bond?

A bond with long-term coupons but a potentially short maturity. A super sinker fund is most likely to be used in home financing, where there is a greater risk of bond prepayment. If the bond principal is paid before maturity - prepaid - bondholders receiv

What do shareholders have the right to do?

Shareholders have the right to vote for the board of directors, but not to appoint officers of the corporation.

What is the problem with AMT?

An investment in an oil and gas limited partnership (Oil and gas direct participation program) may have excess depletion and depreciation as well as excess intangible drilling costs
These are tax preference items and may result in an investor being subjec

What are private activity bonds?

They are typically REVENUE BONDS, not general obligation bonds.
A private activity bond is a type of municipal bond in which the funds being raised will be used to benefit a non-public (private) company (e.g., an airport terminal for an airline). If the p

Who does AMT affect the most?

In theory, this is true for all taxpayers but, in reality, the AMT is only an issue for higher income taxpayers or those with special tax preference items on their returns. When calculating the alternative minimum tax, certain items may need to be include

What are VRDO and ARS and TANs and BANs?

A VRDO and an ARS are both long-term securities with short-term trading features.
A VRDO (MUNI SECURITY) has a put feature that permits the holder to sell the securities back to the issuer or third party. VRDOs are variable-rate demand obligations that ar

What is a ECN?

Electronic communication networks (ECNs) are trading systems designed to match buyers with sellers of securities
Can be used by both institutional and retail investors
Benefits of their use are immediate automatic execution if a matching buy or sell order

Who trades on the NYSE floor? How is institutional block trader related to that?

An institutional block trader may forward orders to the NYSE trading floor from the brokerage firm's trading desk but is not physically located and trading on the floor of the NYSE.
The DMM (SPECIALISTS), COMMISSION / INDEPENDENT BROKERS, and FLOOR TRADER

What are DPPs?

Investments and no control (management) in bond or DPP (direct participation program) investments. The major disadvantage of a DPP is the lack of liquidity, meaning that the investor cannot easily sell his portion of ownership
The largest deduction in a r

What must you do if you are going to invest in a DPP?

When investing in a DPP, the customer must verify that he meets all suitability standards. This can be accomplished by furnishing documents such as past tax returns and a statement of net worth.

What things can you short sale? What is Regulation SHO?

All of the choices listed are prohibited according to the Securities Exchange Act of 1934 except short sales of municipal bonds.
Short sales of securities are subject to the borrowing requirements of Regulation SHO (DOES NOT AFFECT OPTIONS).
Municipal bon

What is manipulating securiites called?

Any person that buys or sells a security for the purpose of attempting to stop the price from falling (pegging) or rising (capping) is engaging in a manipulative action.

What is painting the tape?

Persons who enter into transactions to increase volume, without ownership changing (you buy and sale same security), have engaged in painting the Tape. This is a manipulative act and is a violation.

What is a catastrophe call provision?

Destruction by fire would be included in a catastrophe call provision and permit the issue to be called (revenue bond)

What happens if the tax status of an issuer changes on a muni bond?

If the tax status of an issuer is in doubt at the time of issuance, there is usually a provision requiring that the issue be called if the tax status of the issuer changes and the bonds become taxable

What happens if muni is selling at premium - what is the yield?

The yield for a municipal bond that is selling at a premium and is callable at par is calculated to the call date.
The yield to call measures the yield that will be earned if the bonds are called at the call price and not held to the maturity date.
MSRB r

What is overlapping debt?

Overlapping debt: The financial obligations of one political jurisdiction that also falls partly on a nearby jurisdiction. (USUALLY ONLY FOR G.O BONDS)2.5
Overlapping debt is common in most states because states are divided into numerous jurisdictions for

What is total bonded debt?

Total bonded = Sum of both long-term and short-term debt (Direct debt) plus its share of overlapping debt

What must a person do to become a muni representative?

A person must qualify as a municipal representative prior to effecting a transaction with a customer
To become qualified, the individual must pass a qualifying exam and serve a 90-day apprenticeship
There is no requirement that the person be registered wi

What happens when a municipal finance professional and her spouse sign a contribution check?

When both an MFP (municipal finance professional) and her spouse sign a contribution check, the contribution is considered to have been made by both and is split equally between the contributors
On the other hand, if the MFP is the only person who signs t

What is the total contribution check amount for a MFP?

If that were the case, the underwriting ban would have been triggered since the contribution amount exceeds $250
There is no limit if the MFP's spouse writes a check from his personal account, rather than from a joint checking account.

What do the registration provisions of the 1933 act apply to?

The registration provisions of the 1933 Act apply if securities sold are listed on the NYSE or Nasdaq. In addition ADRs and REITs both issue shares of common stock and if sold to public in the US, require SEC registration(basically any security sold to th

What is a primary / secondary distribution?

Since both the corporation and existing shareholders are selling stock, it is both a primary and secondary distribution. In a primary distribution, proceeds go to the corporation. In a secondary distribution, proceeds go to the selling shareholders.

What must a municipal securities principal do?

MSRB rules require a municipal securities principal to approve all the choices given. In addition, the principal must approve all transactions and must frequently review all discretionary accounts.
I. Memos in response to customer complaints
II. The openi

What is considers advertisement for munis?

The preliminary and final official statements are not considered advertising since they are prepared by or for the issuer
However, a summary of an official statement is considered advertising since it is prepared by the municipal representative and, there

If a muni rep does a sumamry report, must it be approved?

A municipal securities representative does an analysis of an official statement and prepares a summary report. The report must be approved by: a municipal securities principal

What is marking-to-the-market?

Marking-to-the-market refers to adjusting the contract price to the current market price of an open contract for purposes of determining if additional cash is required
Done daily usually for maring accounts

How do you hedge a diversifed portfolio? A one-industry portfolio?

Portfolio consisting of stocks from the same industry may be protected (hedged) against adverse market movements by using narrow-based index options. A narrow-based index gives a measurement of stocks in a particular industry or sector of the economy.
A b

Who can write a call option?

Individual stockholders may write calls on stock they own, regardless of their position as an insider. Trustees of pension funds are permitted by ERISA to write covered calls provided the strategy meets the objectives of the fund. Corporations may write c

What is the option premium made up of?

An option's premium is comprised of two components: its intrinsic value and its time value.
The intrinsic value is the difference between the price of the underlying (for example, the underlying stock or commodity) and the strike price of the option. Any

What is an ADR?

ADRs are American Depositary Receipts, which may be issued as proxies for many different types of individual foreign shares. (Domestic trading of foreign securities)
ADRs (American Depositary Receipts) may be listed and traded on U.S. exchanges, such as t

What happens when a variable annuity contract holder dies during the accumulation period?

When a variable annuity contract holder dies during the accumulation period, the proceeds in excess of cost are taxable to the beneficiary as ordinary income.

What is the OCC risk disclosure?

The OCC risk disclosure document discusses the rules and regulations of options trading, as well as the risks involved in options trading.

What happens in options retail communications and what must they mention?

If you deliver options retail communication WITH Recommendation, YOU MUST DELIVER AN OCC RISK DISCLOSURE DOCUMENT BEFORE OR WHEN YOU SEND
No recommendation - does not need an OCC disclosure
Newspapers, magazines, radio, telephone messages, television, new

What does the bondholder receive when the bond is called?

The bondholder receives the call price (either at par or at a premium) AND accrued interest earned up to the call date.

What can brokerage firms charge for? What is the stipulation?

Under industry rules, a brokerage firm is allowed to charge a customer for collection of dividends, holding of securities, and other services. Most brokerage firms do not charge for these services, but if they do charge, the amount must be reasonably fair

What disclosures do broker-dealers need to make?

Any investment banking compensation paid during the last 12 months, the anticipated price target, and the fact that the analyst is a director of the company are all required disclosures
In addition, any ownership in the company held by the analyst or a me

What is interpositioning?

Interpositioning occurs when a broker-dealer, executing an order for a customer, places another broker-dealer between itself and the market. This is generally prohibited.
The unlawful practice of adding an extra broker/dealer as a principal on a trade, ev

When is a client entitled to reduced sales charge (breakpoint)?

A client is entitled to a reduced sales charge (breakpoint) based up the value of the accounts of other family members WITHIN THE SAME FUND FAMILY. Examples include joint accounts, minors' accounts, and certain retirement accounts. The accounts can be hel

Why is it illegal to induce an investor to buy mutual fund shares shortly before a dividend or capital gain distribution?

To induce an investor to buy mutual fund shares shortly before a dividend or capital gain distribution is to be paid is a violation of the Conduct Rules and is called selling dividends. There is no benefit to the customer because the value of the mutual f

Can broker-dealers give a discount to nonmember broker-dealers when selling investment shares?

No they may not.

Can a broker dealer hold mail for a customer?

A broker-dealer may hold mail for a customer who will not be receiving mail at his usual address provided the firm receives written instructions from the customer that include the time-period during which the mail is to be held.
If the period exceeds thre

What is a nondiscretionary account?

This is a nondiscretionary account and, therefore, no shares may be purchased unless the customer gives the broker-dealer an order to purchase the security
In some cases, a registered representative may accept the customer's verbal authorization to make c

Can a broker-delar pay a fee to a registered represenative?

A broker-dealer is permitted to pay a fee to a registered representative, provided this person is also registered as an investment adviser representative.

Who is a transfer agent?

Performs record-keeping functions (issuing new shares, canceling)
The transfer agent is responsible for issuing new certificates, cancelling old certificates, keeping a record of shareholders and the number of shares each owns, and handling problems that

Who is the registrar?

The registrar makes sure that outstanding shares do not exceed authorized shares

What happens when a member firm issues a research report?

When a member firm issues a research report, it must be approved by a supervisory analyst. A supervisory analyst must be registered as such with FINRA and is required to pass a separate examination.

When does the customer have to return the options agreement?

If the customer (of the registered representative) does not return the options agreement within 15 days of the approval of the account, the customer (registered representative) is permitted only to close out existing positions (cannot open new positions,

When are margin requirements greater than normal?

Margin requirements established by the FRB may be increased by broker-dealers in the form of in-house rules.
FRB rules apply to both retail and institutional investors and may not be replaced by SRO rules.

What are broker's broke communication system used for?

� Broker's broker communication systems are primarily used to carry bids and offers in the secondary market.

Who is considered a research analyst and what is a research report?

A registered representative does not need to hold the title of research analyst in order for the report to be considered a research report. If the report provides sufficient information concerning individual equity securities for a client to make an inves

What should the r.r. do if something has changed for the customer?

Registered representatives have a responsibility to update customer information periodically in case something has changed that would alter a customer's goals and objectives.
Given that the customer has just experienced a financial windfall, the represent

What is a margin account?

A margin account is an account offered by brokerages that allows investors to borrow money to buy securities. An investor might put down 50% of the value of a purchase and borrow the rest from the broker. The broker charges the investor interest for the r

What are soft dollars?

Soft dollars are products and services that an investment adviser receives from a broker-dealer in exchange for channeling some or all of their trades through a certain brokerage firm. KEY IS THAT THE SERVICES THE ADVISER RECEIVES MUST BENEFITS ITS CLIENT

Can a broker-dealer sell securities in a particular state he or she is not registered in?

Any broker-dealer or registered representative selling securities in a particular state must be registered in that state. Being registered with FINRA does not necessarily register an individual in a given state. Many states have additional registration re

What must r.r. do if somebody wants to invest in limited partnership?

A registered representative would be required to certify that she informed the customer of all relevant facts relating to the lack of marketability and liquidity of the limited partnership.
In addition, after obtaining information about the customer's inv

What is difference between accredited investor and institutional investor?

There is a difference between an accredited investor (having at least $1,000,000 net worth or $200,000 of annual income), which is defined under REGULATION D, and an institutional investor (a financial institution or an account with at least $50,000,000 o

Does the r.r. need to know the customer's education background to open account?

No, but a reasonable attempt should be made to obtain all the other information when opening an account for customers

What is a discretionary order?

A discretionary order (giving broker the ability to decide when to buy / sell securities), which requires written power of attorney

Do trades need to be reviewed by a principal?

Yes along with retail communications.

Does a RR need to let principal know about outside employment?

No, but RR must let notify employer

What is the carrying firm and receiving firm for broker dealers?

If a customer wants to transfer an account to another broker-dealer, she must sign a transfer request. The firm where the client has the existing account is known as the carrying firm and the new firm is known as the receiving firm.
According to SRO rules

What is delivery versus payment and receipt versrus payment? And what must the broker-dealer receive before accept a order?

Before accepting a DVP (delivery versus payment) or RVP (receipt versus payment) order from a customer, a broker-dealer must receive the name of the customer's agent and the customer's account number. The order ticket must be marked DVP or RVP.
Delivery v

What must happen if RR makes a recommendation for variable annuity and it is purchased?

If the purchase of a variable annuity is made after a recommendation by a registered representative, several steps must be taken before the application is submitted to the issuing insurance company
RR must DOCUMENT AND SIGN the recommendation before forwa

What happens during variable annuity pay-in period? What are accumulation units

During the pay-in period of a variable annuity, the client is continually purchasing accumulation units. These accumulation units are then exchanged for a fixed number of annuity units when the payout period begins (# of annuity units will not change)
The

Who is suited and not suited for a variable annuity?

A variable annuity is most suitable for an investor seeking long-term, tax-deferred income for retirement. A tax-deferred investment, as with a variable annuity, becomes more advantageous for an investor with a higher tax bracket.
A variable annuity is un

What must happen to determine suitability for a variable annuity?

Variable annuity suitability rules require that contracts sold through FINRA members be forwarded to the representative's OSJ (office of supervisory jurisdiction) and be approved by a principal within 7 business days of receipt before being sent to the in

What is a 1035 exchange?

The primary benefit of a 1035 exchange is that it is not taxable. However, the new annuity may come with new restrictions making it unsuitable for the investor.
A Section 1035 Exchange refers to the replacement of an annuity or life insurance policy for a

What is the cash value of the variable life policy?

Cash value is built up so that in the future policyholders may borrow and use to pay policy premiums or pass on to heirs.
The cash value of a variable life insurance policy increases or decreases in relation to the performance of the separate account.
Poo

What is the relation with AIR and separate account?

AIR does not become relevant until the contract owner annuitizes and the annuitant's payments need to be calculated.
If the return of the separate account exceeds the AIR, the death benefit will increase. If the return of the separate account is less than

What is variable universal life insurance?

Universal life insurance allow families to vary their premiums and death benefits based on current income levels and insurance requirements. Combine investment aspect of variable life and flexibility of universal.
While variable life insurance will provid

What is an annuity suitability rule?

Annuity suitability rules (for things like variable annuities) require that contracts sold through FINRA members be forwarded to the representative's OSJ and be approved by a principal within 7 business days of receipt before being sent to the insurance c

How fast do transactions in Nasdaq need to be reported? And who reports?

Transactions in Nasdaq stocks must be reported to FINRA by the SELLER within 10 seconds of the trade

What kind of retail communications are required to be filed with FINRA?

A retail communication concerning direct participation programs (DPPs), collateralized mortgage obligations (CMOs), and investment companies are all required to be filed with FINRA.
A retail communication that does not make any financial or investment rec

What are investment companies?

Investment companies include variable insurance products, mutual funds, closed-end funds, unit investment trusts (UITs), and exchange-traded funds (ETFs).

Can an employee of a FINRA member firm open an account or place an order at another member firm?

Yes, an employee of a FINRA member firm who wishes to open an account or place an order at another member firm must notify her firm and the executing firm, in writing, prior to opening a securities account.
Since the RR is the custodian for the UTMA accou

What is a revenue bond?

Revenue bond: A municipal bond supported by the revenue from a specific project, such as a toll bridge, highway or local stadium. Revenue bonds are municipal bonds that finance income-producing projects and are secured by a specified revenue source.
Reven

How are revenue bonds taxed?

The interest on a revenue bond is usually paid from the earnings of the facility for which the bonds were issued. The interest is exempt from federal income tax and revenue bonds are considered riskier than general obligation bonds, taxed on local / state

What are terms of revenue bond? Are they likely to default?

Generally, revenue bonds mature in 20 to 30 years and are issued in $5,000 units. Some revenue bonds have staggered maturity dates and do not mature at the same time (these are known as serial bonds). Unlike general obligation bonds, which are backed by t

How should you execute a spread or straddle strategy?

Advanced option strategies such as spreads and straddles should be executed on one order ticket.
In order to enable the investor to ensure the total cost, the order should be entered as a net debit, since the client does not want to pay more than $3,000.

How are options taxed when thinking about strike price?

If the cost basis of stock is 4000 and you paid 700 premium for a 5000 strike price option
Then your gain is 300 (5000-700) - 4000 = 300

What is a double-barreled bond?

A municipal general obligation bond in which the cash flows are pledged by two distinct and different entities. One entity will make interest payments, and the other, the principal payments. These are municipal general obligation (GO) bonds as opposed to

The 8 1/2% bonds are being offered at a discount at 99 1/2% of their $1,000 par value. An investor who purchased the bonds at the offering (at $995) and held the bonds to maturity will receive the par value of $1,000. What is investor's YTM?

The investor will, therefore, have a yield to maturity that is greater than the coupon rate (nominal yield) of 8 1/2% b/c bought bond at discount.

What are convertible bondholders considered?

Convertible bondholders are considered creditors of a corporation and provide investors with the ability to convert their bonds into shares of common stock of the same issuer at a set price (conversion price).
This feature links these types of bonds to th

What happens in periods of easy money?

In periods of easy money, there is availability of money. Therefore, interest rates will decline or be lower. In periods of easy money, bonds of similar quality generally will have short-term yields lower than long-term yields. Both short-term and long-te

How do the price of preferred stock move?

The prices of preferred stocks are inversely related to the movement of interest rates, as are bonds.
Therefore, if the investor is concerned that rising interest rates will erode the value of the preferred stock portfolio (need to hedge portfolio), the p

What is a yield-based call? And how is it settled?

Yield-based calls (which are yield-based options) increase in value when interest rates rise, also creating a viable hedge.
Yield-based options are cash-settled options based on a particular TREASURY (not corporate) security's movement in yield. If an inv

Who are call options issued by? What other products are issued by issuers?

Call options are issued by the Options Clearing Corporation (OCC) and not by an issuer of securities. The other products (Warrants, rights, convertible preferred stock) are created by an issuer of securities.

What happens when a company fails to meet the maintenance requirement? Are quotes firm or nominal?

A company that fails to meet the maintenance requirements of securities listed on the NYSE or Nasdaq will become delisted.
When this occurs, the company may be quoted (but not listed) on the OTC Bulletin Board or in the OTC Pink Market (also called the Pi

What are firm quotes?

Firm quotes obligate the offering dealer to buy or sell the amount quoted.

What are don't know trades?

Don't know (DK) trades occur when the contrabrokers disagree or have conflicting details of a trade (disagreement on price, mismatch on size, no record of the trade at one of the firms). While insider trading is illegal, suspicion of insider trading would

How does one contribute to a 401k? Is the account tax-deferred? Do employers have to match contributions?

In a 401(k) plan, an employee can usually make a pretax contribution in the plan and reduce taxable income. Employee contributions and growth in the account are tax-deferred. Employers are not required to match contributions, but may do so.

What is a section 457 plan? What is the maximum contribution?

A Section 457 plan is a type of qualified retirement plan used by many public sector workers (local and state NOT federal)
457 plans grow on a tax-deferred basis and are generally subject to the SAME CONTRIBUTION LIMITS as 401(k) and 403(b) plans. Each ha

What is a 529 plan? What is contribution amount?

State-sponsored, higher education savings plans that may be opened by an investor are referred to as Section 529 plans.
140000 CONTRIBUTION AMOUNT, also potential gift a lump sum of up to 70k (140 for joint) to avoid gift tax
Federally tax free cause it's

What is an income fund? Growth fund? No-load fund? Sector fund?

A mutual fund investor most interested in current yield (i.e., regular dividend checks) as an investment objective will most likely purchase an income fund.
A growth fund invests in companies that are growing rapidly and pay out a small percentage of earn

What is a inverse ETF? Normal ETF?

An inverse ETF is designed to deliver the opposite of the performance of an index or other benchmark. An inverse ETF based on the S&P 500 Index seeks to deliver the opposite performance of that index. So, if the S&P 500 rises by 1%, an inverse ETF would d

What is a leveraged ETF?

A leveraged exchange-trade fund would be suitable if the customer anticipated an increase in the S&P 500 and wanted a multiple of that increase.
Leveraged-inverse ETF would be suitable if the customer wanted a return that was a multiple or higher return a

What happens when there is rising inflation

Rising inflation tends to have a negative impact on both the bond and stock markets. In the bond market, when there is rising inflation, bond investors look to trade out of fixed-income investments, which will have their returns eroded by rising consumer

What is needed to price a bond (determining yield or real price)?

When pricing a bond (determining the yield when price is known or determining the price when yield is known), the coupon, settlement date, and maturity are required. The number of bond years is used to determine the net interest cost when an underwriter i

What is a trust bond?

Trust bond: a bond that is secured by a financial asset - such as a stock or other bonds - that is deposited and held by a trustee for the holders of the bond

How do you diversify corporate bonds?

A corporate bond portfolio may be diversified with different issuers, coupons, maturities, and geographic locations. The price of the bonds does not help to diversify.

What happens if you want to have a faster registration than normal?

Private placement under Regulation D - (NO NEED FOR OFFERING DOCUMENT TO SEC),
Intrastate offering under Rule 147 - (can sell to a non-resident after nine months)
F1 registration under Rule 415, will usually be faster than a full registration, Regulation

What happens when a stop order is activated?

Stop orders become market orders once they are activated.
After the order is activated at or below 35, the next trade will be the execution price.

What happens when a guy dies with a variable annuity?

It becomes part of his estate for tax purposes

What is the settlement and delivery date on US government notes you purchased on July 3rd?

U.S. government notes have a next-business-day settlement and delivery date.

What does the suitability agreement talk about for a limited partnership?

The subscription agreement will normally state the suitability standards for the program, specify who must sign the agreement, specify to whom the check must be made payable (INVESTOR WILL WRITE CHECK, BUT DEPENDS ON WHO TO SEND CHECK TO - WHATEVER IT SAY

What is found in a munis official statement?

The project feasibility and financial statements are found in a municipality's official statement. Reoffering yield is in the official statement.
But not a 100% necessary.
DOES NOT NEED TO BE APPROVED BY PRINCIPAL

If there is a control relationship with regards to a security - what must the customer know?
What is control relationship in a muni broker-dealer?

Customers must be informed about the existence of a control relationship regardless of the type of account (i.e., discretionary or nondiscretionary) or type of transaction (i.e., agency or principal). The customer must be told of the relationship prior to

What would debt per capita be used for?

Debt per capita is used when analyzing a general obligation bond and would not be considered for a revenue issue.
=(Direct debt + overlapping debt) / # of people

What are mutual funds required to disclose in the prospectus? What is the main fee calculation for mutual funds?

Mutual funds are required to disclose in the front of a prospectus a standardized fee table of all its fees.
The fee table must include the expense ratio, which is the percentage of a fund's assets that is used to pay its operating costs. It is determined

What does 10Ms mean?

10M equals 10,000 par value bonds

What is a fixed share method?

To receive the same (fixed) dollar amount each month. Under the fixed-share method, a specified number of shares are redeemed each month. The amount received depends on the value of the shares at that time.

An investor holds stock in a company and shorts some of it - what stocks can he or she tender?

An investor who holds stock in a company that is the subject of a tender offer may tender only stock that he holds long. If a shareholder has written call option positions against the long stock, the options positions will reduce his net long holdings in

How do use volume in technical analysis?

Volume should move with the trend. If prices are moving in an upward trend, volume should increase (and vice versa). If the previous relationship between volume and price movements starts to deteriorate, it is usually a sign of weakness in the trend. For

What does adding additional deposits to the separate account do?

In a variable annuity, as investors add additional deposits to the separate account, the value of their investment will rise through the purchase of additional accumulation units. If the account performance is positive, the value of each accumulation unit

What happens under a floating rate system for currency? What is a fixed rate system?

Under a floating-rate system, currency values are established by supply and demand for the currency. Supply and demand for a currency may be influenced by the country's rate of inflation, level of interest rates, gold reserves, and trade deficit.
The oppo

What is the use of a broker broker? And who uses it?

A municipal securities BROKER-DEALER and DEALER BANK may use a broker's broker to help sell bonds. Using a broker's broker will allow for good exposure to the market for the bonds. The broker's broker also keeps the identity of its client confidential. A

What is the specialist on an exchange called? And what are they not permitted to do?

The specialist on an exchange is also referred to as a designated market maker (DMM).
A DMM is not permitted to compete with public orders when trading for its own account. The designated market maker must buy and sell for his own account (acting as a dea

In an partnership, if Mr. Smith opened a cash account for the partnership, but died, what would the firm do?

Insurance partnership: If Mr. Smith opened cash account for the partnership but died, the firm would freeze the assets of the account. The firm would then await the proper legal documents needed to release the assets.

What are the SEC Order Handling rules?

The SEC Order Handling Rules require that a customer's limit order be displayed in a market maker's quote if it improves that quote. This is true even if the customer's order does not improve the inside market.

What do SROs do for the market? What do specialists do?

SROs have rules designed to maintain a fair and equitable market and require that firms use reasonable diligence to provide customers with best execution.
They do not have set commission schedules nor do they require that all firms trade for their own acc

What does MSRB require of the official statement? When does a muni need to send a confirmation?

MSRB rules require that a copy of the official statement be sent to each purchaser of a new issue.
A confirmation must be sent on every transaction whether on a new issue or on a secondary market trade.

Do munis file with the SEC?

There is no offering document filed with the SEC (municipal securities are exempt) and a list of the syndicate members does not need to be sent.

What must underwriters do under MSRB rules for new muni issues? What else does EMMA do?

(EMMA) system as the primary market disclosure service for official statements, other related primary market documents, and information. Investors can also access the official statement through EMMA.

What are negotiable CDs and where are they traded?

Negotiable CDs are traded in the secondary market in minimum denominations of $100,000 but typically trade in $1,000,000 denominations. They are issued by commercial banks and are secured only by the bank's credit. Maturities of less than one year are com

What is selling short against the box?

Selling short against the box is used when a client with a long position sells the same security but borrows the stock to effect delivery rather than delivering the long position.

What are exercise limits?

Exercise limits relate to the maximum number of contracts that an individual may exercise during a five-business-day period for each underlying stock on each side of the market. Exercise and position limits apply cumulatively to all accounts that a custom

If customer places order for 1,000 shares nut rr makes error, what happens?

The customer is not required to accept more than the original order for 1,000 shares. However, the order should not be cancelled. Since an error was made, the registered representative should speak with his supervisor to determine how to handle the situat

What is the intrastate exemption and what does it apply to?

Keystone is eligible to offer shares in Pennsylvania (PA) under the intrastate exemption (Rule 147) if 80% of its assets are located in PA, 80% of its revenues are derived from PA sources, and 80% of the proceeds from the sale are used in PA. In addition,

What does the IRS assume in terms of stock moving in and out?

In this question, the investor has two positions in ABC stock and each position was purchased at different times and at different prices. When an investor sells a portion of his holdings, unless his sell order ticket identifies the specific shares that he

What happens to a margin account's debit balance when cash dividends are received / interest from bond / more cash?

Reduce debit, increase SMA dollar-for-dollar

What is S&P's Depositary Receipt (SPDR)?

Standard & Poor's Depositary Receipt (SPDR) is a type of exchange-traded fund (ETF). It can be used to refer to a specific exchange-traded fund that tracks the S&P 500 or a group of ETFs.

What do you need for a discretionary margin trust account?

A new account form, a basic customer margin agreement, and a power of attorney are needed to open a new discretionary account. The basic customer margin agreement includes the hypothecation, loan consent, and credit agreements. A trust agreement is needed

What is a trust?

A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries.

What is a cancel and rebill and when does it happen?

If a transaction is executed but the wrong account is used, the error can be corrected without placing a new order. This is done by transferring the transaction to the correct account number with the permission of a registered principal. This transfer pro

What happens if the CUSIP numbers are not legible on bonds?

If the CUSIP numbers are not legible, the bonds are still in good deliverable form. CUSIP numbers are used to identify securities and to distinguish them from other securities of the same issue.

What happens when you liquidate a 1000 shares a margin account?

CMV and debt reduced dollar for dollar, SMA goes up by 50% of the value

What happens if a stock is held-short-term (one year or less) and a put is purchased? What happens when put is sold or expired?

� If a stock is held short-term (one year or less) and a put is purchased, the holding period is terminated and would not resume until the put is sold or expires. When the holding period resumes, it will do so as if the stock was purchased on that day. If

What is a married put?

If the stock and the put are purchased on the same day, that is termed a married put. In that case, the price of the put will be added to the price of the stock to arrive at a cost basis for the entire position.
So if stock price > cost basis, then profit

What is tax treatment on short sale?

The gain or loss on a short sale is typically treated as a short-term capital gain or loss, since a holding period for the security is not established. The customer closed out the short position the same day, so the holding period was less than one day. I

What do you buy-in, sell at in a fund? How do you know what the sales charge is? How is sales charge calculated?

Buy-in at offer price (buy-in in addition to a sales-charge)
Sell at bid-price or (NAV) - may pay redemption fee when selling (when redeeming shares - typically based on the next calculated NAV so not known at redemption)
The sales charge of the OCEAN Fun

What are analysts most concerned about when looking at mutual fund expenses?

When analyzing a mutual fund's expenses, an analyst is concerned about the amount of expenses as compared to the amount of money managed by the fund. This comparison is made by calculating the fund's expense ratio (operating expenses divided by total net

What is a defined benefit plan?

Defined benefit plan is a type of pension fund. Pension funds and other tax-deferred accounts would not benefit from the tax exemption provided by municipal bonds. (Corporation at risk)
As a result, unless the bonds are taxable and offer yields equivalent

What are corporate retirement plans like?

A corporate retirement plan may be established as either a defined benefit or a defined contribution plan. A defined benefit plan is designed to provide employees with a fixed monthly stipend at retirement. This is generally a percentage of the employee's

Order to buy at 104 net indicates?

An order to buy at 104 net indicates the customer wants to pay a total of 104 including any markup or commission

What is current (Dividend) yield of a stock?

(Only for dividend-yielding stock)
Current yield = annual dividend / stock market price

When is the settlement for foreign currency spot transactions?

Settlement for foreign currency spot transactions is usually two business days.

What is standby underwriting? What kind of offering is mostly used for?

A type of underwriting in which the underwriter agrees to buy all the shares not subscribed to in a RIGHTS OFFERING is a standby underwriting.
The issuing corporation realizes that many shareholders will not participate in the rights offering. This may am

How long do you have to hold stock for dividends to be taxed at capital gains rate?

Currently, dividends paid on stock held by individuals for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date are taxed at a maximum rate of 20%. This is the same maximum tax rate as long-term capital gains. Since th

What is a fourth market trade? And why are trades made in large blocks?

When an institutional investor such as a mutual fund buys stock from the portfolio of an insurance company (another institution), it is considered a trade executed in the fourth market. This is the name given to the so-called market where institutions tra

What does MSRB require transactions be executed at?

MSRB rules require that transactions be executed at a price that is fair and reasonable.

What is a difference between open-end and closed-end fund?

This differs from a closed-end fund which has a limited number of shares available.
Open-end fund: Mutual Fund that will continuously issue new shares but only issues COMMON SHARES. Shares do not trade in the secondary market. Prospectus delivery required

What is a subject or nominal quote? Firm quote?

MSRB rules state that a dealer who does not wish to buy or sell securities based on a quote given, must identify the quote as a subject or nominal quote. Such quotes can be given for informational purposes only.
MSRB rules require that any quote be bona f

How can muni bond investors diversify some risk?

Municipal bond investors can obtain reduced interest-rate risk by investing in issues with different maturities. Bonds with short-term maturities will only experience a small decline in price if the general level of interest rates increases.
Although most

What does a muni bond insurance guarantee?

Municipal bond insurance guarantees the timely payment of principal and interest. If a municipal bond has 10 years to maturity, the insurance company is obligated to make 20 interest payments as they come due and a lump sum at maturity.
TIMELY PAYMENT OF

What must a muni bond confirmation disclose?

Municipal bond confirmation must disclose certain tax information such as whether the bonds are subject to the alternative minimum tax (AMT), whether the bonds are issued as an original issue discount security, and whether the bonds are subject to federal

What is the accrued interest formula?

Accrued Interest Formula = (Principal x Rate x Days of Interest) / 360
360 days for corporate munis (SETTLE T+3)
365 days for government (SETTLE T+1)
Accrued interest begins to accrue that day of the last coupon payment and pay up to, but not including se

Are cash basis and cash trade the same?

No - cash basis / cash trade = settle same day
Cash account = regular way settlement = T + 3

What are corporates and munis quoted in?

Corproates - 1/8
Munis / govies- 1/32

What is a non-dilutive feature?

$1000 dollars converts at $25, then stock split / dividend of 10%
A nondilutive feature requires that the conversion features be adjusted should there be a stock split or stock dividend.
The conversion ratio will be increased and the conversion price will

When is the yield higher for a bond - if it can be amortized over a longer period or shorter?

If the bond is held to maturity, the investor will be able to amortize the premium over a longer period, thereby realizing a higher yield. If the bond is called in ten years, the premium is amortized over half the time, resulting in a lower yield.
If call

When is YTC > YTM and vice versa?

Bonds sold at a discount will have a YTM higher than the nominal yield, because the YTM takes into account the capital gain that is earned when the bond matures
at par.
For bonds sold at a discount: YTC > YTM > CY > NY
For bonds sold at premium: NY > CY >

What is a non-qualified variable annuity?

A nonqualified variable annuity is not used in conjunction with a qualified retirement plan (such as an IRA). Any contribution is made with after-tax dollars.
Therefore, the appreciated value portion of withdrawals would be taxed as ordinary income and th

What is the maximum total underwriting compensation of the gross proceeds of the offering in a limited partnership?

Industry rules allow a maximum total compensation of 10% of the gross proceeds of the offering in a limited partnership. This includes all items of compensation including trailing commissions.
The maximum underwriting compensation for selling partnership

How do you determine the equity in a combined margin account?

To determine the equity in a combined margin account, take the long market value (LMV) plus the credit balance (CR), then subtract the debit balance (DR) and the short market value (SMV): LMV + CR - DR - SMV

What is the cheapest alternative if you think price will decline?

Cheapest alternative is buying put (selling stock short is expensive cause need 50% depost for margin)

What are unit investment trusts?

Some unit investment trusts are funds that buy bonds for a portfolio and usually hold the bonds until maturity. The life of these funds is usually limited to the life of the bonds in the portfolio. Units can be bought in multiples of $1,000. The units can

When used in reference to a market maker, what is the spread?

When used in reference to a Nasdaq market maker, the spread represents the difference between the price at which the firm is willing to buy (bid) and the price at which the firm is willing to sell (ask or offer) a security.
For example, if the bid price i

What is the mark-up / mark-down?

The markup or markdown is the difference between the prices the customer paid or received compared to the best bid or offer price of all Nasdaq market makers (the inside market). For example, if the inside market is $25.50 - $25.70 and the customer paid $

What is the DTCC?

DTCC (Depository Trust & Clearing Corporation): post-trade financial services company providing clearing and settlement services to the financial markets
Regular-way settlement for stock transactions is in three business days. In most cases, settlement oc

Whose authorized signature is necessary for a custodial account?

The only authorized signature for a custodial account is that of the custodian. There is no further documentation required.

What is a divided account (Western vs. Eastern account)?

In a divided account (Western account), the member is responsible for its own participation in the syndicate. If any bonds remain unsold, it is the responsibility of that member.
In an undivided or Eastern account, any unsold bonds are the responsibility

Which order may DMM not accept?

A designated market maker (DMM) (formerly known as a specialist) may accept all of the orders (GGTC order, day order, market order, limit, stop) listed
EXCEPT a not-held order, which allows a floor broker to use discretion in executing an order.

What orders can a DMM hold on his book?

If the question asked which orders may be accepted and placed on his book, the answer would be open (GTC) and day orders only.
A DMM may accept a market order but must execute it immediately and may not place it in his book.

What happens if a trade is executed in the wrong account to an error on the part of the RR?

If a trade is executed in the wrong account due to an error on the part of the registered representative, the best course of action is to cancel the trade and reenter it to the correct account. This action must be approved by a registered principal or sup

When selling stock a customer, a mark-up should be based on what?

When selling stock to a customer, a markup should be based on the LOWEST OFFER ON THE NASDAQ SYSTEM, not the price the dealer paid to purchase the stock (dealer's inventory cost).

When do regular way settlement for corporate securities settle?

Regular way settlement of corporate securities is three business days (but pay attention to what day it is)

What does Reg T require for payment?

The settlement date on a transaction is three business days following the trade date. Regulation T requires payment by customers for purchases in two business days following the settlement date, while the rules of the SRO require settlement between the bu

What is the relation between ex-dividend and record date?

The record date is important because of its relation to another key date, the ex-dividend date. On and after the ex-dividend date, a buyer of the stock will not receive the dividend as the seller is entitled to it.
The ex-dividend date is set exactly two

When is a muni supposed to get a legal opinion?

A municipal bond is expected to be delivered with a legal opinion unless the bond is identified as ex-legal at the time of the purchase
A delivery of municipal bonds may be rejected if they do not meet good delivery requirements such as missing or mutilat

Does a muni securities principal have to approve an official statement? Who is the official statement prepared by?

A municipal securities principal does not need to approve an official statement (OS). An OS is prepared by an issuer of municipal securities and issuers are not subject to MSRB rules.

What do muni securities principal need to approve?

They must approve municipal advertising and correspondence sent to customers
Advertising must be approved prior to first use by a municipal securities principal.
An official statement or preliminary official statement is not considered advertising.
Howeve

What is a red herring? Who is related to?

A red herring (preliminary prospectus) relates to a requirement of the Securities Act of 1933 from which municipal issues are exempt.

Do munis need a prospectus?

No, because it is not registered w/ SEC

What is a good delivery for a municipal bond?

Good delivery for municipal bonds, unless otherwise specified, requires delivery of bonds that have not been called and have an imprinted or attached legal opinion.
The bonds may be in bearer or registered form. Bearer bonds may be delivered in $1,000 or

What is bearer vs. registered form?

A security not registered in the issuing corporation's books but that is payable to its bearer (the person possessing it). Securities can be issued in two forms: registered or bearer.
Registered form means the issuing firm keeps records of a security's ow

What would an increase in assessed valuations do to a muni with respect to taxation and credit?

An increase in assessed valuations would indicate that homes within the municipality are increasing in value, which will improve the municipality's credit.

What are muni bond swaps used for?

Municipal bond swaps may be executed to establish a loss, increase cash flow (increase income from larger coupon), improve maturities, improve yield, and improve quality.

What are term bonds? Serial bonds?

Term bond: Bonds that mature or come due in a specific year. Term bonds are normally quoted using the dollar pricing (percentage of par) method and are sometimes referred to as dollar bonds
Serial bonds: also known as installment bonds describes a bond is

What does the term "when-issued" mean?

The term when-issued covers the period of a new issue of municipal securities from the original date of sale by the issuer to the delivery of securities to the underwriter.
The purchase or sale of new issue securities PRIOR TO REGISTRATION may be a violat

What securities are traded on a when-issued basis?

Treasury securities, stock splits, and new issues of stocks and bonds are all traded on a when-issued basis. Prior to a new issue's offering, underwriters solicit potential investors who may elect to book an order to purchase a portion of the new issue
Th

What is a balanced fund?

Balanced fund: fund that combines a stock component, a bond component and, a money market component, in a single portfolio. Generally, these hybrid funds stick to a relatively fixed mix of stocks and bonds that reflects either a moderate (higher equity co

What is the Trust Indenture Act of 1939? What kind of bond (corporate, muni, federal) is it geared towards?

The Trust Indenture Act of 1939 exclusively regulates CORPORATE DEBT securities. It does NOT cover exempt securities such as U.S. government securities, municipal securities, or private placements.
requires that a trust indenture be established between th

What is a wrap account?

Account in which a brokerage manages an investor's portfolio for a flat quarterly or annual fee. The fee covers all admin, commission, and management expenses. Protects you from overtrading (1-3% fee)

Out of Federal Home Loan, Federal Farm Credit Bank, Federal National Mortage Association, and FRB - who doesn't issue security and what securities are issued?

The Federal Home Loan Bank issues securities and uses the funds to provide liquidity to savings and loan institutions.
The Federal Farm Credit Bank issues securities and uses the funds to make loans to agricultural borrowers.
The Federal National Mortgage

What is difference between a REIT and RELP (DPP)?

A direct participation program in real estate, which is also known as a real estate limited partnership (RELP), would distribute either passive income or passive losses. Both depreciation of the buildings and a lower tax rate on capital gains if the prope

How does an underwriter stable a new issue for an offering price at $21?

An underwriter can stabilize a new issue AT or BELOW the offering price (offering = $21). The underwriter could stabilize at $20.90 and $20.20, but not too low

WHat is a shelf offering?

Shelf registration or shelf offering or shelf prospectus is a type of public offering where certain issuers are allowed to offer and sell securities to the public without a separate prospectus for each act of offering. Instead, there is a single prospectu

What happens when you buy government bonds at discount on secondary market in terms of taxation?

Other components of your return, however, may be taxable when the bonds are sold or mature. If you buy a bond for less than face value on the secondary market (known as a market discount) and you either hold it until maturity or sell it at a profit, that

What are STRIPS?

STRIPS - "separate trading of registered interest and principal securities"
Fixed-income security sold at a significant discount to face value and offer no interest payment because they mature at par
Have to pay federal income tax on bond accretion

What are treasury notes?

Treasury Note: marketable U.S. government debt security with a fixed interest rate and a maturity between one and 10 years. Treasury notes can be bought either directly from the U.S. government or through a bank.
There is a large secondary market that add

What are the different types of syndicated deal (best efforts, firm commitment, negotiated underwriting, standby underwriting)?

Best Efforts: Underwriter promises to make a full-fledged attempt to sell IPO, but underwriters are not responsible for any unsold inventory
Firm Commitment: underwriter assumes all inventory risk and purchase all securities directly from issuer. Bank is

What is a fill or kill order?

A type of time-in-force designation used in securities trading that instructs a brokerage to execute a transaction immediately and completely or not at all. This type of order is most likely to be used by active traders and is usually for a large quantity

What products are issued at a discount?

CP, Bankers' acceptances, treasury bills are issued at a discount

What are the different types of orders (day order, market order, stop order, stop-limit order, good til canceled order?)

Day order - order to buy or sell a security that automatically expires if not excuted on the day the order was placed
Market order: order that an investor makes through a broker or brokerage service to buy or sell an investment immediately at the best ava

What are orders like (not-held order, limit order, time-of-day order, at-the-opening order, discretionary order, immediate or cancel order, (fill or kill))?

Not-held order: A market or limit order that gives the broker or floor trader both time and price discretion to attempt to get the best possible price (must be executed by broker) and will not hold the RR responsible if she misses the market for a securit

How do stock index options settle and in what form of currency and when do they expire and what style are they? How about equity options?

The exercise of stock index option settles in cash on the next business day instead of the delivery of securities (options in general are settled the next business day). Writer is obligated to deliver the CASH DIFFERENCE between the exercise price and the

When do foreign currency transactions settle?

Foreign currency transactions may settle on a spot or forward basis. Spot transactions settle in two business days from the trade date. In a forward transaction, the exchange rate is established on the trade date but settlement occurs in more than two bus

What is a special assessment bond?

A special type of municipal bond used to fund a development project. Interest owed to lenders is paid by taxes levied on the community benefiting from the particular bond-funded project. Backed by charges against benefited property
For example, if a bond

What is a moral obligation bond?

A type of revenue bond issued by a municipality or similar government body. A moral obligation bond not only gives investors the tax exemption benefits inherent in a municipal bond, but also provides an additional moral pledge of commitment against defaul

What is the biggest tax issue with private activity bonds?

The interest on municipal private activity bonds is subject to federal income tax if the investor is subject to the alternative minimum tax (AMT).

What is the difference between qualified vs. non-qualified dividend? Which one does the dividend get taxed at usually?

Qualified taxed at capital gains rate, ordinary at ordinary income
Usually it is ordinary income.

What happens if you have net LOSS in capital gains / losses?

Can net 3000 out of ordinary income and carry forward

How much can you give as a gift as a single person or married couple before it gets taxed?
How about gift to your spouse?

14k for single, 28k for married
To your spouse is unlimited

What kind of bond needs shareholder approval?

G.O bonds must get voter approval, but debt can only go up to a statutory limiit

Are there listed muni bonds?

NO, they are all traded OTC

What are you focused on when investing in G.O bonds

Demographic, population size, TAXES, assesed property value

What is variable annuity taxed at?

No capital gains, all ordinary... the whole thing is taxable because contributions were made pre-tax

What is required minimum distribution and who does it apply to?

RMD is at a certain age you must begin making withdrawals
For Trad IRA / 401k, 403B - subject to RMD, by Apr of 70.5 must begin takin minimum withdraws or be penalized

If you have non-qualified annuity, does it have RMD and how is it taxed?

No RMD and it is A/T so only earnings portion taxed at ordinary income (don't pay on original principal)

What is a fixed annuity?

Fixed interest rate investments like government debt in general accounts, problem with inflation (as with all fixed-income)

How are mutual funds and annuities similar and different?

They are tax deferred, buy in at NAV, but not as liquid
- like a open-investment company (purchasing accumulation units)

When do you incur 10% penalty for IRA?

Incur if you withdraw early, but exempt when:
there is death (beneficiary can take without penalty)
Disability
First time home withdraw (10k)
Qualifiyng education expense

What is a IRA rollover?

Take physical posession of money and then move to different IRA by the 60th day (no tax), can do once every 12 months
(may have withholding tax if too long)

What is ERISA?

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.
If plan is qualifi

What kind of income can you put into a IRA

Only earned income, bonuses, tips, commissions (not investment income)... alimony
CANNOT use rental income

What securities are marginable? Are not marginable?

All listed securities are marginable (EVEN TREASURIES) except:
New issues, mutual funds, and OTC equity securities (pink markets / bulletin board)

What is the initial Reg T requirement?

Set by Federal Reserve, initial equity requirement is 50% in your cash account
REG T = CASH ACCOUNT
5 days to pay = settlement + 2

How do you open cash account?

Need client's name, address, legal age to sign contract, name of RR and signature of principal
don't need signature of client
Need good faith effort to find suitability, relationships / members to firm, name / address of firm

To finalize margin account, client needs to do what?

Client needs to sign margin account, sign credit agreement, margin agreement, hypothecation agreement

Discuss the hypothecation when you have 20k market value and 50% equity.

So you have CMV of 20k, debit 10k, equity 10k
hypothecation - 20k for collateral; bank can rehpyotehcate 140% of debit balance - so 14k

In margin account with 20k market value, 50% equity, what happens when stock goes to 30k?

CMV goes to 30k, debit 10k, equity 20k, and SMA increase to 5k (stock increase - 50% of increase to SMA)

In margin account with 20k market value, 50% equity, what happens when you put in 5k more cash?

market value is 20k, debit goes down to 5 k, equity is 15k, SMA is 5k

In margin account with 24k market value, 10k debit, 14k equity, 2k of SMA, what happens when you withdraw 2k of SMA?

Debit increases to 12k, equity 12k, and cmv is still 24k

What is SMA?

Equity in excess of Reg T based on the increase in the LMV

Even if your account is restricted, if you have SMA you can...?

You can still withdraw the full value of SMA in cash

What happens when you sell securities and your account is restricted?
Jan Jones has a margin account with a market value of $8,000 and a debit of $4,200. She would like to withdraw $4,000 of the securities and deposit other securities to satisfy the reten

In a restricted account, when Jan sells securities, she must
apply at least half the proceeds ($2,000) towards her debit balance.
She may withdraw the entire sale only if she pays cash equal to half the proceeds of the sale ($2,000).
Alternatively, she ca

What is the maintenance requirement? What if you are below reg T but above maintenance requirement?

Maintenance requirement is 25% of market value or long account - if account goes below, then margin call will be made
If you are below reg T but above maintenance, account is restricted (Reg T doesn't make you make cash deposit but it does require him to

In margin account with 30k market value, 10k debit, 20k equity, what happens if stock goes down to 16k?

CMV goes to 16k, Debt is 10k, and equity is 6k, SMA would remain the same
You are restricted cause reg t requires 8, but maintenance is 4k

In margin account with 30k market value, 10k debit, 20k equity, SMA 5k? What happens is you use SMA to buy 10k more in stock?

40k cmv, 20k debit (10k + 2 x SMA), 20k equity, 0 SMA

So if margin account is restricted (CMV goes to 16k, Debit is 10k, and equity is 6k), and I purchase 10k stock, what must I do?

I must put in at least 5k cash. Therefore CMV would be 26k, debit 15k (increase of 5k loan + 5k cash) and equity is 11k... SMA is the same as before (doesn't go negative)

What happens when you receive cash dividends on stocks, interest on bond, and voluntary cash deposts made by customer?
How about liquidating stocks?

100% are used to reduce debit balance and SMA is increased by 100%
100% are used to reduce debit balance and SMA is increased by 50%

What happens when you withdraw cash from a margin account?
What happens when you liquidate stock?

Debit increases and SMA will be decrease by same amount
100% are used to reduce debit balance (CMV decreases) and SMA is increased by 50%

When is margin marked-to-market?

Daily at 4pm at market closing price

What happens if you cannot meet your margin call by paying cash or stock?

Broker-dealer will liquidate 4x the maintenance call
i.e. so 12k in cmv, 10k in debt, and 2k in equity... so need to be at 3k for maintenance... than liquidate 4k of stock so
8k cmv,6k debt, 2k equity

What is the short margin account formula? What is credit balance made of? How is SMA calculated?

Credit balance - SMV = Equity
Credit balance = Short sale proceeds + Margin deposit (50% of initial SMV)
SMA = Equity - 50% of SMV

What accounts move around in the short margin?

the Credit balance will not move around; only the SMV, which affects equity

So if you short 1000 shares at 40 dollars, what happens to your margin account when stock goes to 32? when stock goes to 48?

Stock goes to 32 = (40k + 20k) - 32k = 28k
SMA = 28k - 50% * 32k = 12 k
Stock goes to 48 = (40k + 20k) - 48k = 12k
SMA = 0 (not affected by upward movement in market value of ABC stock)
Min equity = 48k*30% = 14.4k
CREDIT doesn't change with stock price m

What is Reg T requirement in short margin account? What is the minimum equity amount?

Regt T = 50% of SMV
Minimum equity account is 30% of SMV

What can you do with a SMA in a short account?

Withdraw the excess equity or buy 2x the SMA (buying / selling power)

What happens when you withdraw cash from SMA from short margin?
What happens when you buy more stocks with SMA?

Your credit declines as does your SMA dollar for dollar
Your Credit balance increases by the short sale proceeds (2x SMA) + and your SMA declines by total SMA

What is the long initial equity requirement for a margin account?
So what happens to buying 100 ABC @ 15, 100 ABC @ 30, and 100 ABC @50

Below 2k in PROCEEDS = 100% of purchase
2k to 4k = 2k
Above 4k = 50% (reg T)
B - 100 ABC @ 15 = 1500
B - 100 ABC @ 30 = 2000 (1000 on debit)
B - 100 ABC @ 50 = 2500 (reg T)

What is a short initial requirement for a margin account?
So what happens to short-selling 100 ABC @ 15, 100 ABC @ 30, and 100 ABC @50

Below 4k in PROCEEDS = 2k
Above 4k = 50% (reg T)
SS - 100 ABC @ 15 = 2000
SS - 100 ABC @ 30 = 2000
SS - 100 ABC @ 50 = 2500

What are the minimum maintenance requirements (required equity) for a stock sold short in a margin account that is a low-priced security?

1 cent - $2.50 = $2.50 per share
2.50 - $5.00 = 100% of market value
$5+ = greater of 30% of market value or $5

What is the minimum amount invested for opening long or short margin account for Reg T to apply?

At least $4k to be invested

What is the minimum maintenance requirement for combined accounts?

25% of the CMV + 30% of the SMV

What are minimum maintenance requirements based on?

Either the CMV or SMV

Can options that are bought be marginable? If you want to buy 10 XYZ March 40 calls at 3, how much do you have to make as a deposit?

NO, options that are bought are not marginable; Must pay whole cost - so 10
3
100 = $3k
FULL PURCHASE PRICE = PREMIUM must be deposited

When do you need a margin agreement? When do you need an option agreement?

Need margin agreement for stock on margin, selling stock short, writing uncovered options
Options agreement - any type of option being used

How do you write a covered call?
What is the margin requirement to buy 100 shares at 58 and write 1 ABC October 60 call at 2?

For call to be covered:
Need to own underlying stock
Own securities that are convertible into stock
Own a long call that has the same or lower strike price and the same or later expiration as the one written
PRODUCE ESCROW RECEIPT to show that stock is on

How do you write a covered put?
What is the margin requirement for Sell short 100 shares of XYZ at 75 and writing 1 XYZ March 70 put at 3?

For a put to be considered covered:
Deposit with the broker-dealer cash that is equal to the aggregate strike price
Deliver a letter that is issued by a bank guaranteeing that cash equal to the aggregate strike price is on deposit
Be short the underlying

What is initial equity minimum for writing uncovered options?

2000

If you open account and short sell:
500 ABC @ 1
1000 ABC @ 1
what is your minimum equity requirement (deposit)?

500
2.50 + 1000
2.50 = 3750

What is equivalent to your initial deposit?

Initial equity requirement

What happens when you:
SS - 100 ABC @ 22
And S - 1 ABC 25 put @ 7

SS - 100 ABC @ 22 = (not 1100 b/c less than 4,000)... so need to put in 2000 - 700 =1300

What is preferred stock like? What is a 9% preferred stock?

Pays a fixed dividend so it's similar to debt and moves with interest rates... Pays a dividend on $100 par value so 9% preferred equals $9 dividend
Dividend must be paid to preferred before common

Who votes on BOD and what are you using?

Vote is decided by shareholders with the MAJORITY OF SHARES

When do bonds pay interest? When do stocks pay dividend?

Bonds pay interest semi-annually
Stocks pay dividend quarterly

What is the most volatile kind of preferred?

Most volatile is convertible preferred b/c it has characteristics of equity

What are low-beta stocks?

Defensive stocks, public utilities, basic needs - food, clothing, cosmetic, tobacco, alcoho

What is purpose of buying options? Selling options?

Buy options to protect from downside; sell options to generate income

What are options taxed at?

Options never taxed at ordinary income, always capital gain (either long or short)

What does a person with a credit spread want?

NUC - narrow, unexercise, credit
Credit = more money coming in

What does a person with a put spread want?

WED - widen, exercise, debit
Debit = more money going out

What is the spread of an option equal to?

Spread = max gain + max loss

How do you determine if its a bear or bull spread?

If no premium given, first figure out which premium is higher...
For call - lower strike price; for put - higher strike price
Bull if you buy call (lowest strike price) and you sell put (highest strike price)
Bear if you sell call (lowest strike price) an

A customer enters a sell stop-limit order for 100 XYZ at 25.50. XYZ trades occur as follows: 25.50, 25.25, 25.13, SLD 25.50. The customer's order was:
Executed at the market price after the order was entered
Executed at 25.25
Executed at 25.50
Not execute

The first trade at 25.50 touched the stop price of 25.50 and the order became an active or live order to sell 100 shares of XYZ at a limit price of 25.50 or better. Thus, the stock must increase to at least 25.50 for an execution.
The only other trade at

What's the order for opening an options account?

RR should know all the ESSENTIAL facts about a customer and determine suitability
Customer's account has first been approved for option trading by the brokerage firm (depends on facts).
Customer is then sent the Options Clearing Corporation risk disclosur

What is a wildcatting program?

A wildcatting program, also called an exploratory program, searches for oil in unproven areas. Although it is considered the riskiest type of oil and gas program due to the high rate of failure, if oil is found, it has the highest profit potential. This i

What kind of benefits do equipment leasing programs and low-income housing have for DPP?

Equipment leasing programs and low-income housing are designed to generate income and have the potential for tax benefits.
Low-income housing also has significant tax credits
Equipment leasing - generate ability to deduct depreciation expense for tax purp

What is an asset allocation fund?

Asset allocation funds hold diversified portfolios of stocks, bonds, and money-market instruments. The percentage of the portfolio invested in each of these categories is shifted by the fund manager from time to time, often according to computer models.

What are some disclosures in a research report?

The firm was the managing underwriter in a recent public offering of the stock
The firm needs to disclose IT OWNS THE STOCK (BUT NOT THE ACTUAL NUMBER)
The partners of the firm who hold OPTIONS to purchase the stock
The firm makes a market trading in the

What is a sinking fund?

A means of repaying funds that were borrowed through a bond issue. The issuer makes periodic payments to a trustee who retires part of the issue by purchasing the bonds in the open market.
A term issue is one in which all the bonds mature in one specific

What is an equity-indexed annuity?

Equity-indexed annuities (EIAs) are annuities that provide a guaranteed minimum rate of return (unlike variable annuities), but can yield a greater rate of return based on the performance of a linked stock market index. Like a fixed annuity + variable ann

What is a closely-held corporation? What should a RR do if a customer wants to buy into one?

Any company that has only a limited number of shareholders. Closely held corporation stock is publicly traded on occasion, but not on a regular basis. These entities differ from privately owned firms that issue stock that is not publicly traded. Those who

How long is the quiet period before the IPO? What is the quiet period for a secondary offering? How about if it's a part of the syndicate?

If a firm is involved in an underwriting of an initial public offering and is the manager or comanager, it must maintain a quiet period of 40 days following an IPO or 10 days following a secondary offering.
During this time, the firm may not issue researc

What securities have loan value in margin account?

Option contracts (those with less than a year, basically not LEAPS) have no loan value and therefore may not be used as collateral in a margin account.
The exception is LEAPS, which can be bought on margin and, therefore, have loan value. LEAPS are equity

Are NASDAQ quotes firm or subject? What is the Level I of Nasdaq? Level II? Level III?

All NASDAQ quotes are firm quotes, meaning dealers are prepared to execute a transaction at the quoted bid or ask.
Level 1 shows the inside market only
Level 2 displays the quotes of all market makers
Level 3 shows the quotes of all market makers and allo

What is a renewal and replacement fund?

The renewal and replacement fund holds monies put aside for the improvement of the facility, typically for munis

What is selling dividends or dividend selling?

A dishonest broker tactic that involves convincing a client to purchase a stock because it's about to pay a dividend. The broker pretends that this recommendation is in the client's best interest because the dividend will supposedly generate instant retur

What is a letter of intent in a mutual fund?

Letter of intent enables an investor to qualify for a discount made avaialbe through breakpoints without initially depositing the entire amount required. A letter of intent may be backdated up to 90 days and is valid for 13 months.
Letters are non-binding

What is a trust fund?

A trust fund is a fund comprised of a variety of assets intended to provide benefits to an individual or organization. The trust fund is established by a grantor to provide financial security to an individual, most often a child or grandchild - or organiz

Under Rule 144A, RR cannot sell to who?

Under Rule 144A of the Securities Act of 1933, unregistered securities may be resold ONLY TO QUALIFIED INSTITUTIONAL BUYERS (QIBs). Qualified institutional buyers are entities that have at least $100 million of investable assets. The term institution incl

What does the term open sale and open buy refer to?

Open sale refers to writer of a listed option (designation must be written on the order ticket) - contract ends through a closed buy
Open buy refers to buying a listed option - contract ends through closed sell

How much can a client borrow if the client is long and short an equal number of shares of the same security?

If a client is long and short an equal number of shares of the same security, the maintenance requirement is equal to 5% of the long position. The maintenance requirement is equal to $4,000 (5% of $80,000). Therefore, the client is permitted to borrow 95%

What does the CFTC do?

CFTC is the commodity futures trading commission and regulates the commodity and futures market

What is holding a security in street name?

In street name: A brokerage account where the customer's securities and assets are held under the name of the brokerage firm, rather than the name of the individual who purchased the security or asset. Although the name on the certificate is not that of t

When would an investor sign a hypothecation and margin account for opening?

Only for margin account

What is true about stopping stock?

It's PERMITTED ONLY FOR PUBLIC ORDERS and is done by the DMM, will guarantee a price for the order ("basically guarantee an excecution price while trying to find improved or better price for the public customer").
Does not require permission from exchange

According to MSRB rules, what must a secondary market joint account do?

Members of a secondary market joint account must publish the same offering price.

Why is liquidity important for somebody seeking capital appreciation?

Because it gives them the ability to sell when advantageous since the market is liquid

When must duplicate account statements be required when it is requested?

Upon the written request by the employing member firm, duplicate account STATEMENTS ONLY (NO NEED FOR CONFIRMATIONS) must be sent if an employee of a member firm opens a brokerage account at another member, investment adviser, bank, or other financial ins

How is a dividend payout ratio calculated?

Dividend payout ratio = Dividend per share / EPS or Dividends / earnings
is % of earnings per share that is being paid in the form of dividends

What is the difference between American style and European style options?

American style options may be exercised any day up to expiration and European style may only be exercised on the last trading day prior to expiration

When a order has a priced specified, what kind of order is it? Does it have to be exercised at the limit price? Is it immediately exercised?

Since a price is specified, it is a limit order. A limit order may be executed at the limit price or better (lower for a buy order). It does not need to be executed at exactly the limit price. A designated market maker is permitted to hold a stop, limit,

What is an all or none order (AON order)?

A order that must be completely filled or else not be filled
If it is not an all or none order, then a portion of the order may be purchased

What kind of orders can a DMM hold on his book?

Designated market maker is permitted to hold a stop, limit, and stop-limit order

What is a survivorship account?

A type of brokerage account which is owned by at least two people, where all tenants have an equal right to the account's assets and are afforded survivorship rights in the event of the death of another account holder.
In this type of brokerage account, a

What must a broker-dealer receive before it marks an account deceased or change the account title in a joint account?

The broker-dealer must receive a death certificate as proof of death before it may mark an account deceased, or change the account title in a joint account.

Duplicate account statements must be sent to FINRA when?

A member firm is required to send duplicate account statements (NOT CONFIRMATIONS) to FINRA when a customer of the firm is an employee of FINRA.
The member firm would need written instructions from the employee of FINRA when opening an account in order to

What is an immediate-or-cancel order?

An order that dictates to fill as much of the order as you can right now and cancel the rest is called an immediate-or-cancel order.

How do limit orders get onto a DMM's book?

Limit orders are placed as either day or GTC orders and the unexecuted portions are placed on the designated market maker's book.

What is the probate process?

The death benefit on a variable annuity skips the probate process. Probate is the court-supervised process of gathering a deceased person's assets and distributing them to creditors and inheritors.

How are variable annuity's taxed?

Taxed on gain portion at ordinary
The recipient of a death benefit from a variable annuity may need to pay taxes on any amount above the contract's cost basis.
For example, if a client invested $100,000 and died when the contract was worth $150,000, a non

If a customer is 65, and has a ROTH IRA of 350k, how much can it withdraw tax-free?

Unlike a traditional IRA, contributions to a Roth IRA are not tax-deductible, so the investor is contributing after-tax dollars. The advantage of the Roth IRA is that all the money accumulated in the account may be withdrawn tax-free after age 59 1/2 if t

What is needed for a corporate to open a cash account?

A corporate resolution authorizing a person to trade for the account is necessary to open a corporate cash account.
A corporate resolution is a corporate action, sometimes in the form of a legal document, that will be voted on or has been voted on at a me

When is a risk disclosure document needed?

A risk disclosure document may be required but only if options or penny stocks are going to be traded in the account.

If a Company wants to open a margin account, other than a hypothecation agreement, what does it need?

A corporate charter - A written document filed with a U.S. state by the founders of a corporation detailing the major components of a company such as its objectives, its structure and its planned operations. If the charter is approved by the state governm

What is the "seasoning" of an investment?

The length of time a debt security has been publicly traded. Seasoning determines if a premium should be made for the security in the secondary market. The debt security can be "unseasoned" if has been traded for less than a year, or "seasoned" if it has

What do you have to do, to be listed on the NYSE?

To be listed on the NYSE, a corporation must have a minimum number of round-lot shareholders, a minimum number of publicly held shares, a minimum aggregate market value of publicly held shares, a positive earnings history, national interest in the corpora

What does it mean to solicit proxies?

Attempt by a group to obtain the authorization of other members to vote on their behalf in an organizational ballot. In corporate settings, a proxy solicitation is usually accompanied by a 'proxy statement.'

A broker-dealer is underwriting an initial public offering (IPO) for a company that will be listed on the NYSE. The broker-dealer is required to deliver prospectuses:

Prospectus must continue to be delivered for 25 days after the effective date.
The prospectus delivery requirement for an IPO that will not be listed on an exchange continues for 90 days after the deal closes.

What is the effective date?

The date, declared by the Securities & Exchange Commission (SEC), on which shares can start trading. This usually refers to the date when shares become available for sale in an initial public offering.
The effective date occurs approximately 20 days after

How long does SEC have to accept or reject a registration?

The registration will be either accepted or rejected by the twentieth day or earlier. Amendments can be made to the registration if the SEC deems that changes are necessary. If the items in question are not modified, the registration process is not comple

What is a Yankee bond?

A bond denominated in U.S. dollars that is publicly issued in the U.S. by foreign banks and corporations. According to the Securities Act of 1933, these bonds must first be registered with the Securities and Exchange Commission (SEC) before they can be so

An investment adviser opens an account for one of his clients. The registered representative opening the account would need?

Since the account is being opened for the investment adviser's client, the registered representative would require the client's name and Social Security number. Since a person other than the account holder (the adviser) will be entering orders, the regist

When do you need the client's signature to open an account?

When another person other than the account holder (the adviser) will be entering orders, the registered representative would require written authorization from the client granting the adviser the right to enter orders.

What is a contingency order?

An order that is executed only when certain conditions of the security being traded, or another security, have been fulfilled. Such prerequisite conditions range in scope and depth. In a simple case, a contingency order may depend on the potential purchas

What is an easy-to-borrow list? Hard-to-borrow list?

n order to aid in the process of locating securities, the SEC has accepted the use of Easy-to-Borrow lists. These lists, which must be less than 24 hours old, provide reasonable grounds for belief that a security on the list will be available to be borrow

What is restricted stock?

Restricted stock units - given to employees
Unregistered shares of ownership in a corporation that are issued to corporate affiliates such as executives and directors. Restricted stock is nontransferable and must be traded in compliance with special SEC r

How do you calculate EPS?

EPS = (NI - Dividends on PREFERRED STOCK) / Avg. Outstanding shares

Which of the following annuity settlement options would provide the longest stream of income over the lives of two individuals?
Life annuity with a 20-year period certain
Joint and last survivor annuity
Unit refund life annuity
Straight-life annuity

The joint and last survivor settlement option would provide the longest stream of income as it guarantees payments until the last annuitant dies. (SO IF YOU DO IT WITH YOUR SON... IT WILL KEEP PAYING TIL HE DIES)
The life annuity with 20-year certain woul

What are the lowest to highest interest rates? Fed funds, discount rate, broker's call rate, and prime rate... and what are they

Fed funds - rate at which banks loan to each other
Discount rate - rate charged to banks on loans received from FRB's lending
Broker's call rate (or call rate) - interest rate relative to which margin loans are quoted
Prime rate - lowest interest rate cha

What is a CDO?

A collateralized debt obligation (CDO) is a type of asset-backed security. A CDO is issued as a bond, which is backed (collateralized) by a pool of bonds, loans, and various other assets. Ownership of this type of security is typically in the form of a tr

What asset cannot be depreciated?

Land

How do you calculate market cap?

Market cap = Total outstanding shares (issued - treasury) * stock price

What kind of funds charge a management fee?

Closed-end investment company, open-end investment company, ETF (that are managed... unmanaged don't have management fees), hedge fund, private equity funds

If you have capital losses what can you do with them?

You can write $3k off ordinary income this year, and carry the rest forward

What is the crossover point in a DPP?

The crossover point is reached when the project's revenues exceed expenses and net income is produced.

What is phantom income?

Income paid to a taxpayer during the tax year that is not constructively received at the taxpayer's end.
Phantom income is not terribly common, but does manifest itself in such investments as limited partnerships, where the earnings are taxed but not rece

A customer does not have a discretionary account with his brokerage firm. The firm may decide which of the following factors for the customer?

If a customer indicates the specific stock and amount that he wishes to buy or sell, the registered representative is permitted to choose the time and price of execution. This would not be considered a discretionary order and written trading authorization

Treasury arbitrage restrictions generally prohibit issuers of municipal securities from:

Because of the tax exemption allowed on municipal bond interest, municipalities are normally able to issue bonds with coupon rates below those of Treasury securities. This presents an excellent arbitrage opportunity. A municipality can borrow at a low rat

What is a tax swap?

A tax swap is the sale and purchase of bonds (or other securities) to realize a capital loss that can be offset against a capital gain.

The federal tax exemption for interest earned on an industrial revenue bond is NOT available if the:
And who is the sole backer of these bonds?

If the holder of an industrial revenue bond is a substantial user of the facility, then the federal tax exemption on the interest earned does not apply.
The corporation that uses the facility that was built by the industrial development revenue bond becom

What is the easiest tool for the FRB to regulate the amount of money and credit in the banking system?

Open market operations

How can a muni bond be rejected?

A municipal bond can be rejected if it is missing a legal opinion, has missing or mutilated (cannot be ascertained) coupons, or the certificate is mutilated.
Cannot be rejected because of a sudden change in market price

A customer is currently short 100 shares of ABC common stock at 57.50 and, for protection, has entered a buy stop order at 60. Round lot trades that took place after these orders were entered were:
58, 59.50, 60.10, 60.50, 60, 59.85
The round-lot trade th

By entering the buy stop order, the client is attempting to limit any loss to about $250 (2 1/2 points on 100 shares). The buy stop is entered above the current market price. The stop will activate on the first round-lot trade, which occurs at or through

What is the biggest risk of long-term, high-grade bonds?

Long-term, high-grade bonds are relatively safe investments, but do have purchasing-power risk. Because the amount of interest income is fixed, the purchasing power of the interest income may decline over the long term because of inflation. A rise in infl

What does MSRB require in a confirmation?

MSRB rules require that a confirmation be sent to a customer at or before the completion of the transaction (settlement date).
The confirmation must include whether the customer purchased or sold, the par amount, and a complete description of the securiti

What is a matched sales purchase agreement for the Fed?

An arrangement whereby the Federal Reserve sells government securities (U.S. Treasuries) to an institutional dealer or the central bank of another country with the contractual agreement to purchase the security back within a short period of time, usually

What is the maximum allowable percentage that may be sold above the original size of the offering through a Green Shoe option?

The overallotment provision of an underwriting agreement may contain a Green Shoe clause that allows the syndicate to increase the number of shares sold by 15% over the original number of shares in the offering.

What is true concerning the disclosure requirements of CMOs in correspondence?

Due to their unique characteristics, CMOs may not be compared to any other types of investment, including a certificate of deposit.
This prohibition applies to any communications with the public about CMOs, which includes retail communications and corresp

What is a face-amount certificate company?

A face-amount certificate company is an investment company which offers an investment certificate that paid a predetermined rate of interest

What does the Investment Company Act of 1940 consider to be an investment company?

A face-amount certificate and a management company (open-end, close-end fund) are two types of investment companies. The third type is a unit investment trust.

An RR is hosting an event that is focused on the suitability of variable annuities. At the conclusion of the event, the RR provides a sheet for attendees to provide their contact information if they are interested in setting up a one-on-one meeting with t

A person may register her number on the Federal Trade Commission (FTC) National Do Not Call Registry and have it remain on the list indefinitely.
An RR is permitted to contact a person whose name is on this list if the person has provided her prior expres

How quickly do option transactions settle? What is the REg T payment date?

Option transactions settle on the next business day between brokerage firms and the Options Clearing Corporation.
According to Regulation T, payments for transactions in cash and margin accounts must be made by the customer within two business days follow

What is reclamation and rejection in terms of securities?

Reclamation is the process of returning securities that were previously accepted on the settlement date.
Rejection is when the brokerage firm refuses delivery of the securities on the settlement date.

Who makes the decision to stop the option from trading?

Officials of the exchange on which the options trade make the decision to stop trading the options.

Who regulates option trading? Trading options on futures?

Trading in options on stocks is regulated by the SEC and FINRA, but trading on options on futures is regulated by the CFTC and the NFA.

What are the taxes on withdrawals from a tax-deferred account?
How does taxation work on an IRA account?

Withdrawals from a tax-deferred account are never taxable as a capital gain.
The earnings on an IRA account grow tax-deferred. If only pretax contributions are made, the entire withdrawal is taxable as ordinary income. If an investor maintains an IRA acco

What is a reverse merger?

In a reverse merger, a private company buys a public company with the acquirer's shareholders swapping their shares for a majority stake in the publicly traded shell corporation. This technique allows a private company to obtain publicly listed status qui

Why do companies do spinoffs?

Spinoff transactions occur when a company is seeking to divest a division. In a spinoff, each shareholder of the parent retains her original shares, but is also given shares in the newly created entity. There are no immediate tax consequences to the recip

A registered representative enters an order for a client. In error, the RR purchases shares of the wrong security. What happens?

The shares are placed in a broker-dealer account.
All broker-dealers are required to maintain an error account. It is used by a broker-dealer if the firm or an RR executes a trade in error (e.g., the wrong security or the wrong side of the market). RRs do

A charity has received restricted stock from the director of a corporation. The director owned the stock for two years before giving it to the charity. According to SEC Rule 144, the charity may sell the stock:

The charity may sell the stock freely (immediately) since the required holding period for restricted stock has already been met by the director. Since the charity is a not affiliated with the issuer (a nonaffiliated person), it is not subject to the volum

Do variable annuities or mutual funds pay taxes on dividends?

Mutual funds yes at ordinary income, variable annuities no b/c they are tax deferred

A registered representative employed by the research department of a member firm is NOT permitted to be supervised by which department of a broker-dealer?

Current regulations require a member firm's research department to be separate from its investment banking department to avoid conflicts of interest. An RR employed by the research department is not allowed to be supervised by the investment banking depar

Are IRA contributions deductible?

Yes for traditional IRAs, no for Roth IRA

Can you have both a pension and IRA? What must your IRA contributions be made in?

Yes.
Contributions must be made in cash.

Can you short-sell in a margin account and cash account?

Yes you can short sell in margin account; cannot short sell in cash account

In a Rule 144A transaction, which of the following statements is NOT TRUE?
The seller, or any person acting on its behalf, such as a broker-dealer, must reasonably believe that the purchaser is a qualified institutional buyer (QIB)
The buyer must be able

The SEC has provided several examples of documents that can be relied on by the seller when establishing its belief that a purchaser is a qualified institutional buyer. Audited financial statements and a certification from the issuer are common methods of

What is Rule 145?

Rule 145 applies to mergers, consolidations, reclassifications of securities, or transfers of corporate assets (spinoffs). Rule 145 requires a company to provide written disclosures (IN THE FORM OF A PROSPECTUS) to shareholders in connection with the prev

What is different about a mutual fund and its ex-dividend date than normal?

Mutual funds sell ex-dividend whenever the fund or its principal underwriter (sponsor) determines. The ex-dividend date for a mutual fund is usually the same day as the record date.

What is regulation FD?

Regulation FD (fair disclosure) applies to issuers of securities. Regulation FD requires that material, nonpublic information disclosed to analysts or other investors be made public. If the disclosure is intentional, the information must be simultaneously

How do you calculate the payout of a variable annuity?

A fixed number of annuity units multiplied by a variable dollar amount
When a variable annuity is annuitized, the annuitant will be assigned a fixed number of annuity units based on several factors, including the value of the investment, assumed interest

What is an underwriter involved in? What is a sponsor involved in the sale of? Does the 5% mark-up apply?

If a member was acting as an underwriter, the firm would be involved in a new issue and, if acting as a sponsor would be involved in the sale of a mutual fund.
Since these transactions require a prospectus, they would not be covered by the 5% Markup Polic

A municipal dealer purchased $100,000 face value of 6.00% bonds at a 6.00 basis. If the dealer reoffered the bonds, which TWO of the following choices will be considered reasonable?
101
108
5.80 basis
4.00 basis

The dealer purchased the bonds at par (6% coupon at a 6.00 basis). When reoffering the bonds, the dealer's markup should be reasonable. A one-point markup (101) is considered reasonable, whereas an eight-point markup (108) is not. An offering of 5.80 repr

What is most important in selecting a DPP?

The most important factor for any DPP is whether it is a good investment. The tax-related aspects are only of benefit if the program is economically sound.

How many stocks are in each Dow Jones for utilities, transpo and industrials?

Utilities - 15, transpo - 20, Industrials - 30

What call feature do you use to price a bond?

Make-whole call or whatever the value of call is
Do not use catastrophe call or sinking fund call
When pricing a bond, only a call feature that allows the issuer to call the entire issue is used.

Reports have been released discussing the instability of the Japanese economy. Imports from the U.S. have been decreasing. The rate of inflation in the U.S. has dropped and the U.S. GDP has increased.

Given this information, it appears the value of the Japanese yen is decreasing and the value of the U.S. dollar is strengthening.
If imports are decreasing, then US dollars is getting stronger... Countries weaken currency (depreciate, value goes down) to

An RR sees that a CMO is yielding 5.95% while the comparable Treasury is yielding 5.10%. This means that:

If the yield on a CMO is 85 basis points higher (5.95 - 5.10) than a comparably maturing Treasury security, the CMO provides a yield pick-up or higher yield of 85 basis points.

What is a fund family or fund complex for mutual funds?

The term fund family or fund complex is used to define a single investment company or mutual fund company with many different types of mutual funds that a customer may choose to purchase.
The objective is to provide a large number of mutual funds providin

An investor owns convertible preferred stock that was originally purchased at $106. The stock is convertible at $25, pays a 5% annual dividend, is callable at $110, and is trading at a current market price of $112. If the common stock is currently trading

To determine the cost basis of the common stock, the first step is to calculate the conversion ratio (i.e., the number of common shares to be received if the preferred stock is converted). To calculate this, the par value of the preferred stock ($100) is

What are SPDRS, QQQ, and Diamonds?

SPDRS, QQQ, and Diamonds are S&P, NASDAQ, and DJIA ETFs

What is the TRF? Are there reporting systems for the US government bond market? What is TRACE / RTRS?

TRACE is a reporting system that was created to provide greater transparency in the corporate bond market
RTRS is the reporting system for municipal bonds and the
TRF is the reporting system for stocks listed on Nasdaq.
FThere is no reporting system for U

Municipal bearer bonds that are in default of interest, trade:

Municipal bonds that are in default, trade flat (without accrued interest) and must be delivered with all unpaid coupons attached. If the bonds begin paying interest, the present holder is entitled to the past interest payments.

In a custodian account, who determines when the minor takes control of the account?

In a custodian account, the minor would take control of the account when the child reaches the age of majority. This is determined by the state in which the minor is a resident. This is part of the Uniform Transfers to Minors Act (UTMA). Where the account

What is the easiest way to boost yield for an investor?

Writing covered calls - The call premium received will increase the yield on her portfolio of stocks because it will add to the income generated by the dividends received from the stock.

Does 401k, Roth IRA or defined benefit plan use actuarial assumptions?

Defined benefit plan

According to current regulations, if a client redeems his mutual fund shares, the fund company must send the payment within:

Seven days

What happens with a tax credit and tax deduction for DPPs?

A tax credit will reduce the amount of taxes owed by a customer directly. A tax credit is more beneficial and may be found in a DPP, which specialized in low income housing.
A tax deduction reduces the customer's taxable income.
An example of a tax deduct

Knowing a client's tax bracket is particularly useful when evaluating the suitability of which type of investment?

Knowing a client's tax bracket is particularly useful when evaluating the suitability of municipal bonds. The interest on municipal bonds is typically tax-exempt, which is less of an advantage if the client is in a low tax bracket.

What is a parity bond?

This is an example of a parity bond where two or more issues of revenue bonds have the same claim against revenue or are backed by the same pledged revenues.

Under the Know-Your-Customer Rule, when a registered representative opens a new account for a customer, the registered representative should determine all of the following information EXCEPT

Should know customers:
Financial condition and needs
Objectives
Ability to assume risk
BUT DO NOT NEED TO KNOW EDUCATION LEVEL

A customer has a discretionary account at a broker-dealer. The customer has received a research report and has indicated that she may want to purchase a stock on the recommended list. Which of the following actions is MOST appropriate for the registered r

This is a discretionary account and, therefore, shares may be purchased without additional written customer consent. A principal or supervisor of the broker-dealer is required to approve promptly in writing each discretionary order.

What are tax preference items?

A type of income, normally tax-free, that may trigger the alternative minimum tax (AMT) for taxpayers. Tax preference items include private-activity municipal-bond interest, the qualifying exclusion for small business stock and excess intangible drilling

When does broker-dealer act like a principal?

A broker-dealer is acting as a principal when buying for or selling from inventory.
In choice (IV), the broker-dealer is buying 500 bonds to fill an order for 250 bonds. The remaining 250 bonds will be for inventory.

An investor has been saving for her child's college education using a 529 plan. If her child will be attending college in a few years, what should she do?

As a child approaches college age, a suitable investment strategy is to move from growth-oriented securities, such as equities, to income-oriented securities, such as bonds, and money-market funds. Once a child begins to attend college, most of the funds

What does tax-qualified mean? What is a tax-qualified annuity?

Tax qualified means Typically grow tax-deferred, deductible for income
Tax-qualified annuities are employer-sponsored plans that are available to certain nonprofit organizations, public school, and/or state/city university/college employees.
These annuiti

An advertisement for municipal securities states the following:
"15-year 10% tax-free bond priced to yield 12% to maturity. Call us now for more details."
According to MSRB rules, this advertisement should also state that:

Discount bond!!!
According to MSRB rules, the advertisement must state that a portion of the yield to maturity for a discount bond may be subject to taxation and, therefore, does not represent a fully tax-free yield. In this question, the bond is being of

What is the multiplier effect?

The multiplier effect, created by the reserve requirements placed on members of the Federal Reserve System, refers to the fact that small changes in bank deposits result in large changes in the money supply.

How do you calculate the current yield?

The current yield is found by dividing the yearly interest payment of $45 by the market price of $1, 055. This equals 4.26%. The fact that the bond was purchased at par is not relevant.

What is 1 points = %? If something increased by 20 points, how much percentage is that?

1 point = 1%
20%

What are long-term brokered CDs

Long-term brokered CDs are not considered highly liquid since there is no active secondary market. Like most fixed-income securities they are subject to interest-rate risk.
In addition, they may be callable and have other features such as floating rates.

Does Reg T require muni bonds to have margin requirements?

Reg T exempts municipal bonds, meaning the Fed makes no margin requirements, but the NYSE generally requires a 15%

What is the cooling off period?

When a new stock issue is going to be offered, a registration statement must be filed with the SEC. After the filing, there is a period when the SEC reviews the information to ensure full disclosure (this is the cooling off period)
During the cooling-off

Can there be more than one custodian in custodian account?

There may be only one custodian for a minor's account. Either the husband or the wife may be the custodian. However, they may not both be custodians for the minor's account.

What is par value of bonds? Preferred stock?

bond: 1000; p/s: 100

Munis bought at OID are tax...? Us govies bought at OID?
What if muni bought in secondary market at discount?

Muni: TAX-FREE if HELD TO MATURITY, purchased OID (considered interest income - so tax-free federally, not capital gain)
- The interest (accretion) on an out-of-state muni security is exempt from federal tax, but subject to state and local income tax. Tax

What is in the basic customer margin agreement?

The basic customer margin agreement includes the hypothecation, loan consent, and credit agreements

What is funded debt?

Funded debt is corporate debt with a maturity of one year or more

What is a spread?

Buying and selling calls / Buying and selling puts

Where is bond counsel's legal opinion? and what does it say

In the official statement. It says bond is the legal debt of the issuer and confirms the bond's tax-exempt status.

What is current yield on bonds?

Current yield = Annual Interest / Current market price

Once warrants are issued, what do they behave like and how do they trade? Do they have short terms than rights?

Warrants behave like long term options and trade as an individual security after they are issued. They have long terms than rights.

What is the passbook savings rate? Out of discount rate, fed funds rate, and prime rate, and passbook, which one is most volatile?

The passbook savings rate is the interest rate an individual receives on a basic savings account with a commercial bank and is the least volatile rate.
The Fed funds rate is the most volatile rate b/c it calculated on a DAILY BASIS.

What does it mean when a firm is position trading? What does position trader do?

Position trading is another term for a firm making a market in securities and trading for its own account to make a profit.
Position trader is responsible for maintaining a broker-dealer's inventory as well as trading the firm's account.

What happens if day orders are not fulfilled?

Day orders may be executed in parts, any remaining shares unfilled at the end of the day are cancelled.

If somebody wishes to remain anonymous when opening account, what must she have?

Number or symbol as long as the owner provides a written statement of ownership

Compared to government securities, what is different about Ginnie Mae?

All government issued securities are taxed only at the federal level. This applies to government agency debt as well. However, Ginnie Mae is an exception and is taxed at all levels.

Almost all revenue bonds have what feature?

Call feature

What is the difference between recession and depression?

A depression is defined as a severe downturn in the economy, lasting 18 months or more, with unemployment rates greater than 15%. A recession is defined as 2
or more consecutive quarters of negative GDP growth.

What do classical economic theory say?

Classical economists believe that, if left alone, the economy will naturally reach its most efficient level of production and ensure a healthy medium (laissez-faire)

What is a sell-out?

A sell-out is when a customer of a broker dealer fails to buy according to the terms of the contract or fails to deposit sufficient margin in an account and the firm sells the securities to bring the account up to maintenance.

What is an income (adjustment) bond?

Also known as adjustment bond.
A type of debt security in which only the face value of the bond is promised to be paid to the investor, with any coupon payments being paid only if the issuing company has enough earnings to pay for the coupon payment.
Inco

What is SRO?

A non-governmental organization that has the power to create and enforce industry regulations and standards. The priority is to protect investors through the establishment of rules that promote ethics and equality.

What are the typical underwriting processes for GO and revenue bonds?

If a municipality appoints an underwriter to offer a new issue, it is a negotiated underwriting. This type of underwriting is used for Revenue bonds. General
obligation bonds are usually awarded through competitive bidding whereby an issuer invites bids f

Do variable annuities give you a guaranteed rate of return?

No, you would have to invest in an equity-indexed annuity.

What is the quick asset ratio?

(Current Assets - Inventory) / Current Liability

What are leading economic indicators?

Average weekly hours (manufacturing)
Average weekly jobless claims for unemployment insurance
Manufacturers' new orders for consumer goods/materials
Vendor performance (slower deliveries diffusion index)
Manufacturers' new orders for non-defense capital g

What are coincident economic indicators?

Employees on non-agricultural payrolls
Personal income less transfer payments
Index of Industrial Production
Manufacturing and trade sales

Lagging economic indicators

Average duration of unemployment
Relationship of inventors to sales, manuf. trade
Labor cost per unit of output for manufactured goods
Average prime rate charged by banks
Commercial and industrial loans outstanding
Relationships of consumer installment cr

Who is the person who organizes and registers a a partnership?

Syndicator

What is a conflict of interest in a real estate limited partnership?

If you borrow from the partnership
If you own or lease property adjacent to the property of the partnership