Securites Act of 1933
full and fair disclosure of new issues through the use of prospectus.
regulates primary market
Exchange Controls
restrictions on currency conversion or movement
Howey case
creates guidelines for what security is
investing money through pooling with the intentions of making profits by the efforts of others
issuer
(business and government entity)
person who issues new security
underwriter
sellers that issues contract
prospectus
any notice that is security for sale
exempt by securities act of 1933
1-government/foreign gov: issued /municipal issues
2-anything that matures in less than 270days(9months)
or face value less than 50k
3-any non-profit shit
4-any equipment trust bond shit (like railroad)
5-rule 147 ( about the 80% )
6-banks, insurance comp
Exempt Transactions under act 1933
1-regulation d -private offering /private placement
2-transaction by a person other than issuer, underwriter, or dealer
3-financial institution
4-isolated non-issuer (neighbor sell appl stock to me)
cooling of period
20 day period where the security is reviewed by the SEC
defiance letter
SEC finds something missing in the prospectus
preliminary prospectus (red herring)
used to seek out investors the are interest or would be interest only (no sale or pricing the bitch)
final prospectus
summarization the registration statement
rule 482
(omitting) prospectus
allows mutual fund (tombstone) advertising
cannot contain application to purchase the fund
regulation D or rule 506
exempt from SEC registration, more of a private placement transaction considered federal covered security
can only be sold to
35
nonaccredited
investors unlimited to the the rest
506c-accredited investors
506b-no advertising
rule 501
classifies accredited investor who's net worth exceeds 1 million dollars or makes an excess of 200k or 300k spouse jointly for regulation d
form d
a file that must be filed within 15 days to the SEC under rule 503 of regulation d
restricted security
unregistered securities purchased by investor in private placement therefore restricted for certain period of time (also called letter securities)
control person
corporate director or officer who has more than 10% stock or spouse of the !0% owner
control stock
must be reported by the SEC and is owned by a control person ( if not it is just regular stock)
non-affiliated
investor who is not a control person
sec rule 144
filing form 144 to sell control stock and restricted security
Act of 1934
made the SEC TO
regulate trading practices of exchanges, broker-dealers, issuing companies, and individuals who trade securities.
2- (regulates everything but credit)
except extension of credit
3-regulates secondary market trading and exchanges (does not
margin requirements(credit requirements)
determined by board of governors of the Fed to set margin requirements. for how much credit broker dealers can give out to individual for margin trade
SEC
consist of 5 people when becoming an official all their investment go to a blind trust and are not allowed to invest other than government securities
broker
not banks.... involves shit with transactions
represents ppl that wish to buy securities by either finding a buyer or seller. (middle man)
dealer
banks, insurance companies any investor big, small or private that likes to (buy and sell securities for his own account)
acts as principal of there trade, buy and sell security for their own account. when some is is looking to buy he sells it of his own
associated person
any person who works directly or indereivtly with broker dealer. not clerical workers like janitor or shit.
market makers
dealers who willingly to buy and sell a particular security for his own account on a reg continues basis
Securities Information Processor (SIP)
any company willing to publish or begin to publish their shit like ticker and stiff but not thru any of the normal pop media platforms.
transfer agent
acts on behalf of the issuer,
counter signs
registers security
exchange or convert security
transfer ownership
exchange
must be registered, takes 90 days, board of directors be represented by one person membership is only offered to broker dealers or associated persons
self regulatory association (SRO)
registered security or exchange market (example FINRA)
equity security
aka Stock or something similar to that
municipal securities
direct obligation or obligation guaranteed securities given by the state
government security
anything government related like genie mae
statutory disqualification
either thru misconduct or ethical reason or just did illegal shit involving finance within the last 10 years can get barred from the sec.
loosing a civil suit or even involving securities does not count.
SEC is the appropriate regulatory agency (regulates) for
1)national security exchanges
2)registered security association
3)members of an exchange or association
4)person associated with a member
5) applicant to become member
discretionary account
account set up with pre-approved authority to trade without asking the homie
discretion
authority to decide
-which security
-buy, sell
-# of shares
Not timing of investment
discretionary authority
-filing a written trading authorization
-limited power of attorney
schedule 13d filing
person that owns
more
than 5% due to being beneficiary or deciding to aquire more on his own has 10 days to file a report to
SEC the, the exchange and issuer/board of directors
13 f securities
any discretionary manager the uses email or shit similar to that hold 100million in the amount must file every 45 days a form 13f to the sec quarterly
sec may close the market
for 90 days but must tell the president first and suspend a security listed on a exchange fro 10 days
Schedule G Filings
same as a 13d except its only for passive investors aka silent investors,
have 10 days after hitting 5% to file a 13g if they want to ramble silent investor even though owning more.
45 days reporting schedule about changes (if any)
passive investors
don't give a fack about changing the issuer, and own 20% or less
Section 16 Filings
control persons (officer director) file transaction reports before the end of the 2nd business day or considered insider
churning
dealer trades often af to make more money doing the transaction
wash trades
owner buys and sells shares to give the perception that the stock is hot
insider trading
control person
treble damages
homie could pay up to 3 times the amount he got, or saved through insider tradingc
Limitations on liability
damages will not exceed profit gained or lossed
Statute of limitations for insider trading
after 5 years nothing can happen
CHINESE WALL DOCTRINE
aka information area, the level of protection firms must make so that their private information doesn't leak
SEC Rule 15c3-1 (Uniform Net Capital Rule)
minimum net capital requirements a broker dealer must have in liquid to due business
Securities Amendments Act of 1975
remove any barriers to competition in the securities industry,
fixed commission abolished,
regulate transfer agents
investment advisor act of 1940
The SEC may conduct investigations.
The SEC may subpoena witnesses and administer oaths.
The SEC may make and issue rules.
Investment Company Act of 1940 does not include
?broker-dealers and underwriters;
? banks and savings and loans;
? insurance companies;
? holding companies;
? issuers whose securities are beneficially owned by no more than 100 persons; and
? issuers who trade in investments other than securities. - -it
types of investment companies
1. Face Amount Certificate Companies
2. Unit Investment Trusts (UIT's)
3. Management Investment Companies
A. Closed End
B. Open End
Face-amount certificate company
obligates the issuer to pay a fixed sum at a fixed date in periodic amounts, 24 months, if liquidate early than invite loose money
Unit Investment Trust (UIT)
has no board of directors or issues only redeemable security, no manager, once created it follows a time frame.
Management company
an investment company like a mutual fund (open end fund) or close end fund
mutual funds
mutual fund must redeem its tendered share in 7 days after receiving a written request for their redemption
may not be purchased on margin
and must be always served with a prospectus
can be used a a collateral in a margin account
coordination
used by nonexempt companies that are registering with the SEC.
qualification
is for intrastate registration of those companies not registered with the SEC
ineligibility of certain affiliated persons an underwriting
can't get a job in finance if you got a felony or misdemeanor in the last 10 years involving financial shit, �� if you fall under that you may file some shit with the sec to allow you to get jobs
investment companies share split
they must have 60-40 %, meaning that 60% shareholders who run the business also or work in it and 40% shareholders who just own the stock thats it..like secret investor.
current yield on mutual fund is
dividend x 4 divided by (POP) public offering price
rule 12b-1
asset based payment mutual funds act as their own underwriters and shit,
prohibited activit�s of invest companies
1-may not purchase security on margin 2-cannot have joint account with someone else
3- sell short
4- cannot not get more than 3% outstanding
changes in investment policy
major outstanding vote needed��change from open to close or diversified to non diversified �� change in policy��change nature of business (function to benefit shareholder )
size of investment company
must have net worth of 100k
investment advisory and underwriter contracts
any advisory contract paperwork can't be confirmed until approval of non-interested members of the board
transaction of certain affiliated person and underwriters
registered investment companies cannot sell or buy other shares other than it own
it cannot borrow money or property from the fund itself
and it cannot knowingly purchase other securities other than the funds shares
affiliated person
owns 5% and holds voting power
custodian
every registered investment must keep its assets with a custodian (bank) and it cannot have fdic coverage.
investment companies must file
annual report of balance sheet and income statement (10k)
LARCENY AND EMBEZZLEMENT
penalty and fine of up to 10k, or 5 year jail, or both right to appeal during 60 days.
CURRENCY TRANSACTION REPORTS (CTRS)
must report any transaction that's 10k or bigger and wire transfer of 3k or more
THE NATIONAL SECURITIES MARKETS IMPROVEMENT ACT OF 1996 (NSMIA)
created federal covered advisors which divided the responsibility of regulating advisor by the state and sec.
also created federal covered security which are exempt from being regulated by the state. although state can ask for notice of filing which is do
Cease and Desist Order
administrator can order it without a hearing yet made, if he feels,,,, that shit is being violated
stop order
used to deny or stop a registration
final orders
ends litigation via administrator or court saying guilty or innocent
broker-dealer
does security transactions, when acts on behalf of client broker on behalf of himself dealer
nonissuer
benefits not the issuer
investment adviser representative
any individual (natural person) who represents a state-registered investment adviser or federal covered investment adviser
Administrator require a broker-dealer to
1-file various financial reports
2-publish an announcement of the application for registration in a newspaper published in the state
3-promptly file a correcting amendment to any document on file that is wrong to the administrator
security
stocks, bonds, debentures, variable, mutual fund shit like that
exempt transactions
registration with the administrator is not needed
guaranteed
payment of principal, interest or dividend
but not capital gains
SRO's
FINRA, MSRB, CBOE,IIRO
solicitor
agent of an advisor for compensation
institution
bank, trust companies , anything with a value of no less than 1mill$
retail client
not institution its basically real people
four classes of securities professionals that fall under the jurisdiction of state securities laws:
? Broker-dealers
? Agents�always individuals (natural persons)
? Investment advisers�
? Investment adviser representatives�always individuals (natural persons)
not broker dealers
1) issuer,
2) agents and banks,
3) savings institutions and trust companies
4) commercial bank
5)don't have a place in the states
6)intrastate trading (snowbirds)
blue sky law
state security laws
net capital requirments for broker dealers bd
bd already must have certain cash due to sec rules. BD has to have the sec state amount to do business and can say fack you to administrator if they ask for more. SURETY BONDS are required have discretionary accounts and cash or asset may be acceptable fo
surety bonds
bonds broker dealers get might need to have if handling client money.
Disclosure of Capacity
bd can act as either a
principal or a agency capacity
and must disclose it no later than completion of the trade.
principal capacity
broker dealer is the buyer and seller buys from companies and sells to clients
bd holds inventory (might have to disclose the markup or markdown of the product they sold)
agency capacity
broker dealer gets payed like a real state agent,
basically bd is the middle men for the buyer and the seller
agent
individual (associated person) who represents a broker dealer, issuer, act on commission basis (registered representative) only a normal person aka actual person can be an agent (must file u4 form)
exclusion of agent
doesn't not effect security transactions with the public
1-clerical
2-administrative
3-ministerial
Securities Exempt from Registration (exempt securities )
individual is excluded from the term agent under an issuer if 1-anything
government
related,
2- banks,
3-commercial paper that is top 3 rated with 50k ,
4-investment contracts connected with employees 401k and shit like that
exempt transactions.
1-unsolicited broker transaction
2-transaction between issuer and underwriter
3-financial institution transaction
4-private placement
5-trustees with bankruptcy
Administrator may deny or revoke the exemption from registration for
1-A security issued by a nonprofit organization.
2-Investment contracts of employee benefit plans.
3-An exempt transaction not involving a federal covered security.
Private placements
offer to no more than 10 non-institutional persons in a 12-month period for
investment purposes
(not immediate resale), where no commissions are paid, directly or indirectly.
seller relieves payment
agent switches employer (issuer or bd)
the agent, new employer and old employer must notify the administrator
ppl that represent bd in a sales capacity
must register even if they sell exempt securities
agent and bd relationship
if broker dealer looses registration, the agent is considered no longer licensed. (placed in suspenses or hold)
financial requirements for an agent
no financial requirements, only if the agent handles discretionary account then he may be required be bonded
multiple registrations for agents
individual cannot act as an agent for multiple bd, unless granted by the administrator and if so must file another u-4 document
Limited Registration of Canadian Broker-dealers and Agents
a canadian broker dealer can fack in the states if he has a client that is a canadian resident that visits the U.S or client who lives in the U.S but has a IRA in canada
1-person from canada vacationing in the U.S
2-client who lives in the state but has I
investment adviser
charges money giving advise to others plus charges assets managed
registered with the SEC or the state (under act 1940 and USA)
Investment Adviser Representative
homie that represents an advisor or federal covered advisor that is soliciting advisory services
submitting an application to register required by administrator
fingerprints do not have to be submitted
consent to service of process.
for every state he registers the administrator of that state has to receive that consent to service document. detailing all the Staes he wishes to register. only done once in each state
filing fees
for initial application and renewal application , if application denied, administrator is allowed o keep a portion of the fee. can only renew on december 31st (always and only)
EFFECTIVENESS OF REGISTRATION
dude becomes registered at noon 30 days after submitted
withdrawing registration takes 30 days also from time of submission unless the admin spots illegal shit.
administrator can shorten the time frame though same with withdrawals
while pending homie cann
books and records
every broker dealer must keep records that date back 3 years,
administer can look at it whenever he wants
don't need to keep copy of customer tax returns
online red flags
1-promise of high returns w/ no risk
2-offshore operation
3-e-currency site
4-recruit friends
5-proffesional website with little to no information
6-no written information(prospectus)
7-testimony form other group members
advertising
don't post misleading shit also don't leave out the cons in a brochure as well a highlight a prospectus
broker dealer advertising
Finra decides what's a recommendation , if it'd just educational than its not a recommendation if its educational plus targeted marketing or selling then its recommmendational.
common enterprise
enterprise in which money of an investor is mixed in with a agent offering an investment, third party or there investors
not a security
1-interest on retirement plan , IRA or keogh plan
2-collectibles
3-commodities like metal, grains, future contracts
4-condominiums use a residence not to rent
5-currency
6-annuity or endowment (214 license)
not regulated by state since not a security
issuer transaction
all sales (stock, bonds) go to the issuer.
ex. newly issued security
nonissuer transaction
the sale of security does not go to the issuer
ex. secondary market where the stock you buy goes to someone other than the issuer (secondary trading)
initial or primary offering
things like IPO and SPO or APO
Subsequent Public Offering (SPO)
when the issuer wishes to put more securities other after already doing it.
also known as APO
CATEGORIES OF FEDERAL COVERED SECURITIES
1-open and close end securities, UIT, FAC (act 1940)
2-any place that holds stock like NYSE, NASDAQ shit like these
3-rule 506b or 506c of regulation d under act 1933
a city municipal bond can be exempt from state if they sell outside the state but if sol
METHODS OF STATE REGISTRATION OF SECURITIES
? notice filing;
? coordination;
? qualification.
all must apply for "consent to service " only once don't have to do it more than once
notice of filing
a way for the states to make money of of them,
an administrator may require for the paperwork that they gave to the SEC as well as consent to service before a federal covered security can be traded
Registration by Coordination
not federal covered securities ( pink sheets )
most frequently used method and only way to multi state register
effective date
same time as sec approves it unless there is a
stop order
has been held in the state for at least 10-20 days
and the charges and
registered by qualification
requires the registant to comply with whatever the state security administrator, only when the other methods don't work.
ex. intrastate securities (registered in only one state)
must supply
1-shit you find in a drivers license
2-info on 10%+ owners and th
exempt security from state registration
??usa and canada gouvernent and municipal security
??foreign gov securities (political subdivision not included)
??depository institution _security that has interest or debt obligation (anything a mutual fund or similar faks with)
??insurance company secu
not exempt from federal registration under act 1933
??Foreign government securities
?? Insurance company securities
?? Federal covered securities (those listed on exchanges or Nasdaq and registered investment companies)
federal covered security
must register with the SEC but not the state
(ex. regulated banks are exempt from registration under both federal and state. however bank holding companies, although federal covered security must register with the SEC and not the state)
Exempt Transactions
?? secondary (nonissue) transactions
?? Unsolicited brokerage transactions- initiated by the client not the agent
?? Underwriter transactions- issuer to underwriter or underwrite to underwriter
?? Bankruptcy, guardian, or conservator transactions-
??Insti
Administrator can revoke
non-profit organizations
and employee benefit plan and exempt transactions that are not federal covered securities
accredited investor
meets regulation d, rule 501, net worth more than 1 mill
institutional investor
individual that handles large amounts of money for other people , ex. mutual funds, insurance, bank and or pension
SUMMARY OF EXEMPTIONS FROM REGISTRATION
applies to security or transaction only, so if a security transaction is exempt like governments security, then it can be sold without state registration as-long as the seller is is registered in that state it is being sold
basically saying that a broker
registrant
person registering for security
registration statements for state administrator
when filed must include,
??# of securities issued
??states in which security will be offered
??any legal trouble
??anticipative effective date
?? purpose of raising money
may include past files filed with the administrator (5years)
can be filed by the iss
Filing Fee
issuer must pay a filing fee which is a % of the total offering price. if file is stoped or shit similar for a reason the administrator keeps a portion and give the rest back
Ongoing Reports
the administrator may ask for the issuer to file reports to keep the filing current
(quarterly )
escrow
only in coordination or qualification
may be ruined to be place in escrow if the security was issued
in the past 3 years
to a promoter at a price diff the actual offering price
any person for a consideration other than cash
also administrator may hold you
special subscription form
administrator may say to use a specific form, and hold it for 3 years
withdrawal of registration statement
takes 1 year to withdraw after effective date
outstanding security may be withdrawn if administrator say yes
fraud
the deliberate attempt to deceive someone for profit or gain
material
information used by a protective purchaser to make an informed investment decision
Misleading or Untrue Statements
agent cannot hide shit from client when pushing a sell, nor can he give false statement.
Inaccurate market quotations
telling client that stock is up when its is actually down
Misstatements of an issuer's earnings or projected earnings or dividends
telling client that earning are up or dividend will increase when in fact it is the opposite
Inaccurate statements regarding the amount of commissions, markup, or mark- down
commission must be disclosed properly,
required to be disclosed during trade confirmation
Stating or implying that the agent has inside information when such is not the case
untrue statement, although it isn't inside trading it is still wrong
Telling a customer that a security will be listed on an exchange without concrete information concerning its listing status
only true if the agent knows it to be true and not just bullshiting
Informing a client that the registration of a security with the SEC or with the state securities Administrator means that the security has been approved by these regu- lators
registration never implies approval
Misrepresenting the status of customer accounts
agent lies about his client account.
tellling him that its going up when its really going down
Promising a customer services without any intent to perform them or without being properly qualified to perform them
say yes to something you haven't or can't
Representing to customers that the Administrator approves of the broker-dealer's or agent's abilities
broker dealer is registered not approved, improper way of using the word approved in this sentence
Failure to State Material Facts
USA doesn't not require an agent to say every material fact but just the parts that the investor need to make a sound investment choice.
order ticket
when filing out an order to purchase or sell securities
everything but clients name or address
Material inside information
any info that hasn't been disclosed to the public and would effect the value of security even if acquired by accident can't be used.
DELIVERY DELAYS
having a pattern of unjustafiable or unreasonable delay of desiring securities.
(broker dealers only)
client request a certificate for a security purchased he must receive it upon request.....if it is delayed than its unethical malpractice
CHURNING
excessive trading in a clients account
UNSUITABLE RECOMMENDATIONS
recommending to a client to purchase, sale or exchange the security without any reasonable grounds other than to make yourself profit
Free Lunch Seminars
only suppose to do education not sell anything at the moment.
UNAUTHORIZED TRANSACTIONS
entering a order on behalf of the client without the clients approval or knowledge
EXERCISING DISCRETION
agents may not fack with clients account without written authorization called (power of attorney)
trading authorization
. if granted agent may only do
1-asset
2-action(buy,sell)
3-amount(#of shares)
MARGIN DOCUMENTS
executing transactions in a margin account with out securing from the customer an actual written margin agreement after initial transaction
free securities
securities that have no lien on them
Hypothecation
the pledge of property as security for a loan
COMMINGLING
securities held in a firm for a customer may not be mixed with securities of the firm (broker dealers only)
IMPROPER HYPOTHECATION
hypothecating customer transaction without having a lien
(broker dealer only)
UNREASONABLE COMMISSIONS OR MARK-UPS
literally in the name
TIMELY PROSPECTUS DELIVERY
failing to show or give the customer is prospectus on the right time (due date of confirmation)
qualification prospectus
before the sale of security
UNREASONABLE SERVICING FEES
(broker dealers only )
in the name
charging way way to much for service
Higher Than Normal Commissions
(broker dealer only)
all charges must be disclosed but it isn't unethical to charge higher than normal if the job matches the price
Disclosure of Fees
(broker dealer only)
1-when customer account is opened
2-make sure the fee is clear to see
3-dont use big words to describe the fees
not included in fee disclosure
?? commissions,
?? markups and markdowns, and
?? advisory fees.
DISHONORING QUOTES
(broker dealers only)
if dealer quotes price than he better honor it
MARKET MANIPULATION
in the name
1-matched orders -
2-wash trade
3-arbitrage
matched orders
when you buy or sell a security knowing that there is someone else waiting to sell or buy that security at the same time causing an illusion of trade frequency
wash trade
when you yourself sell and then buy the same security in order to cause the belief of trade frequency
arbitrage
buying an selfing the same security in different market to take advantage of the price discrepancy
GUARANTEEING AGAINST LOSS
in the name, telling a customer that you will cover the loss or shit similar to that
DISSEMINATING FALSE TRADING INFORMATION
publishing and spreading false shit around unless broker dealer believes it to be true
house fund
a mutual fund where the
underwriter or adviser is affiliated with the broker-dealer
FAILING TO DISCLOSE CONFLICTS OF INTEREST
(broker dealer only)
that the agent selling the security also works for the company issuing the security.
WITHHOLDING SHARES OF A PUBLIC OFFERING
in the name (broker dealer only)
RESPONDING TO COMPLAINTS
if a customer sends a complaint, he must be notified that the complaint is received and that it would be entered into the complaint file.
if agent receives complaint he must be considered aware but must not receive a copy of the complaint
Reporting errors
(broker dealer only)
any error found must be reported by the agent to a supervisor
front running
unethical practice of a broker dealer or agent placing a personal order before the customers order
only counts if an institutional investor places an order that would move the market
SPREADING RUMORS
agent hears a rumor must tell supervisor to control said rumor
BACKDATING RECORDS
all orders must reflect their actual dates, unethical if is not done
WAIVERS
(broker dealer only)
basically any big waiver like to sue and shit is void aka can't be valid
INVESTMENT COMPANY SALES
1997 NASAA adopted a statement that about dishonest and unethical practices by broker dealers and agents
1-Sales Load Communications
2-Breakpoints
3-Selling Dividends
4-Share Classes
5-Switching Funds
6-Proper Yield Disclosures
Sales Load Communications
sating or implying that shares are sold without commission
Breakpoints
when the agent or broker dealer doesn't let the customer know about discounts if he puts bait more money in
Selling Dividends
stating or implying to a customer that purchase of share before the exdividend date is advantageous
Share Classes
telling homie to buy shares and take the sales charge even if it doesn't fit his niche
Switching Funds
making the client liquidate his funds to invest in another similar fund for the purpose of the agent making money
Proper Yield Disclosures
telling a clients the funds current yield or income without disclosing the funds most recent average annual return
LENDING OR BORROWING
agents may not borrow or lend money or security from a client. however from a broker dealer, family, or financial institution in the business of lending
PRACTICES RELATING SOLELY TO AGENTS
1-selling away
2-fictitious account
3-sharing account
4-splitting commission
selling away
trades not on the book
fictitious account
adding on fake shit to make the account more favorable
Sharing in Accounts
sharing profits or losses with the client unless written statement saying its ok (only for agent can share the rest .....Fack no)
Splitting Commissions
in the name with other ppl that aren't coworkers.
Sale or Sell
any transfer of a security in which money or other valuable shit is covered by this definition
offer or offer to sell
attempt to or offer to dispose of, or solicit an offer to buy a security for value
(all considered security therefore admin can touch it )
(bonus, gift stock, warrant, right)
Assessable Stock
given as a gift but the administrator still has jurisdiction involves an offer and a sale
terms sale or sell and offer or offer to sell do not include any:
1-pledge
2- loan
3-gift of nonassessable stock
4-stock dividend and stock split
5-class vote,
6- merger,
7-act incident
LEGAL JURISDICTION OF THE ADMINISTRATOR
in order for the administrator to be king dick, it must either
--originate in his state,
--be directed to his state
--or accepted in his state
since some securities go for many states than multiple administrators from those state can fack with them
PUBLISHING AND BROADCAST EXCEPTIONS TO JURISDICTION for offer
administrator can't touch any advertisement offers if they originate in a different state or if it does come from said state if 66% of tis promo is to other states.
RULES, ORDERS, AND FORMS
rules - applies to everyone
order - applies individually (orders can be challenged within 60 days)
CONDUCT INVESTIGATIONS AND ISSUE SUBPOENAS
administrator can administer this rules within our outride the state and also publicly or private
has power to
1-require statement in writing
2-publish and make public
3-subpeona witnesses
4-take evidence and require production of books and shit
Contumacy
when they refuse to follow the administrators orders or give him what he ask for
administrator must go to court to get a subpoena
ISSUE CEASE AND DESIST ORDERS
if the administrator believes that a person is about to engage or has engaged in wrong doing, the administrator can
1-issue cease a desist
2-bring action to court
administrator doesn't have power to compel compliance to their order must get adjunction for
enjoined
a person who is the subject of an injunction.
adminatrotors power
DENY, SUSPEND, CANCEL, OR REVOKE REGISTRATIONS
to
1-broker dealers
2-adviser
3-represantatives
4-registration of securities issued
Lack of Qualification
you cannot be rejected because of lac of knowledge however they could levy a thing where he can work but not give advice.
Summary Powers (summarily )
administrator may order
the administrator may order a postponement or suspension without having to hear or see anything. once the summary order is entered the administrator must must notify the everyone involve with the person. if a the person wishes a he
vacated
lifting of a stop order
NONPUNITIVE TERMINATIONS OF REGISTRATION
registration can be terminated even if there has not been a violation under USA.
request for withdrawal and qualification is enough reason fro cancellation
Withdrawal
person may request a withdrawal of his own registration. effective 30 days after the administrator receives it, provided no revocation or suspension is currently going on
Cancellation
administrator may cancel the registration if the person is dead or doesn't do business anymore , or mental health
1-if mail is sent back with no forward address
registration
once it has been withdrawn the administrator can still hold it for a year
also
when suspension is over if original firm is gone he has 2 years to find a new firm. if not then he must retake the test
CIVIL LIABILITIES
ppl who sell or offer securities that are in violation of USA are subject to civil liabilities as well as criminal penalties
Statute of Limitations for civil provision
violation for civil provision is 3 years from the date of sale or 2 years after discovering the violation
Rights of Recovery from Improper Sale of Securities
recover
1- whole money back
2-interest rate determined by administrator (state legal rate)
3-attorney and court fees paid
4-minus income received from the security while it was held
Rights of Recovery from Improper Investment Advice
recover
1-cost of advice
2-loss from the advice
3-interest rate determined by admin
4-attorney fees
5-minus income received from said advice
does not revoker original purchase price
unless renewed, the registration of the following securities professionals expires on December 31
Agents
Broker-dealers
Investment advisers
Investment adviser representatives
Right of Rescission
when investor believes he has been wronged, may use this to get all his money back plus interest and attorney cost paid.
seller offer to repurchase the securities from the buyer. with interest determined by the admin
letter of rescission
sending the letter giving the buyer 30 days to accept or reject the right of rescission, if he doesn't act upon it then he loses lawsuit rights.
Right of Rescission for Investment Advice
if agent feels like he did wrong he can offer the buyer a package equal to what it would be if he the buyer sued him
Claims Against the Surety Bond
any customer that can prove a violation can receive the surety bond
CRIMINAL PENALTIES
$5k penalty and or 3 year jail sentence,
Statute of Limitations for criminal
5 years from the date of the offense
JUDICIAL REVIEW OF ORDERS (APPEAL)
any person affected by the administrator can ask for a review of the order by filing written petition within 60 days
COMMUNICATIONS WITH THE PUBLIC
advertising must contain
? Not FDIC Insured
? No Bank Guarantee
? May Lose Value
however it can be excluded in
?30 sec or less radio broad cast
?electronic signs
?banners or poster for location indicator
Investment Advisers Act of 1940
defines the term investment adviser and requires persons that fall within the definition to register with the (SEC) or state
Fiduciary
person legally appointed and authorized to hold assets in trust for another person.
Person associated with an investment adviser
any
person who works along with or controls investment advisor but does not not clerical work
Supervised Person
all employes of an investment advisor including bosses or clerical function
SEC RELEASE IA-1092
identifies an adviser as anyone that gets paid for giving advice and receives compensation directly or indirectly for said services
Financial Planners
make recommendations regarding a person's financial resources or perform analyses that concern securities
Pension Consultants
Consultants who advise employee benefit plans on how to fund their plans with securities until he reaches 200 million AUM then he must register with the state (200mill+ register with he sec)
Sports and Entertainment Representatives
person who provides advice to stars /popular ppl
exclusion from definition of investment adviser under federal law
1-bank defined as a holding bank
2-lawyer,accountant,teacher
3-any bd who services is incidental
4-publisher in a newspaper or similar
(not book authors)
5-any advice given for government security
6-any national recognize statistical agency
exclusion from definition of investment adviser under state law
1-bank, saving institution trust company
2-investment adviser representative
3-federal covered adviser
4-anyone that the administrator excludes
5-the rest same as federal law
adviser exempt from registration (UNDER FEDERAL LAW)
1-intrastate adviser
2-adviser to insurance companies (clients are insurance companies)
3-private fund adviser
private fund adviser
1-handles less than 150 million AUM in private funds
2- foreign private adviser that manages less than 25 million
3-advisers solely to venture capital funds
Exemption for Foreign Private Advisers
?no place of business in the U.S
?less then 15 clients
?less then 25 mill
?doesn't tell the public he is an adviser
Exempt Reporting Advisers (ERAs)
complete and electronically file reports using the Investment Adviser Registration Depository (IARD)
As long as the adviser continues to qualify for the exemption on either the federal or state level, registration will not be required. However "certain re
Investment Adviser Registration Depository (IARD)
electronic form for FA to register as well as regulatory review and public disclosure of FA's
FEDERAL COVERED ADVISERS
registered with the sec and are or are not registered with act 1940
1-manage less then 110 mill
Large Investment Advisers
$100 mill + in asset management
Small Investment Advisers
LESS THAN $25 mill can't register with the SEC only state UNLESS REGISTERED IN 15 OR MORE STATES than he can do SEC
Mid-size Advisers
between $25 -$100 million prohibited from sec registration must do state
Exceptions Under Dodd-Frank
pension consultant and investment adviser expected to make 100 mill in 120 days
The $20 million Buffer
allows a 20 million dollar difference to be used to stay in a level like a person that has to register with the sec because he manages 110 million if he goes to 90 million he can still be registered with he sec, if it drops lowers than 90 than he has 180
EXEMPTION FROM REGISTRATION FOR INVESTMENT ADVISERS UNDER THE UNIFORM SECURITIES ACT
ppl who fall under IA that are already registered in their state but don't have to register in another state, because their client are
1-broker dealers
2-other investment adviser
3-institutional investor
4-existing clients who are temporarily in the state
Rule 203(b)(3)-1
single client:
natural person, minor(child of person), any spouse or resident that has same address a person,
PRIVATE FUND ADVISER EXEMPTION UNDER (STATE LAW) as well as performance fee based
1- no more than (100) investor must be qualified clients(meaning $1million in assets managed by advisor or have 2.1million in own assets
.Form ADV
contains 4 parts
1A-ask about the investment adviser
--schedule 1A-- (owners and business practice)
--schedule1B --info on indirect owners
1B-additional questions required by state(if registered with SEC than avoid)
2A-requires advisor to create narrative
control
means the power directly or indirectly to direct the management or policies of an investment advisor
each control is different for different purposes
for a
1- exchange act 1934 is more than 10%
2-investment company act is more than 25%
3-adviser act is 25
submitting form adv to state if he has office in said state
1-if a federal covered investment adviser (or registered with SEC) part 1A
2-if it is state registered adviser than must file parts 1A and 1B
updating form ADV
updated each year by filing an annual updating amendment within 90 days
fees
fees for initial filing and renewal
no fee if changes Is new form of business
ex.from sole proprietorship to a corporation
successor firm
under federal and state law, a successor firm registers by filing a new application paying fees under the SEC but not the USA
effective date of registration
registration takes effect on the 45th day after filing of a complete application,
all securities professionals at noon of the 30th day for state registers investment advisers
form ADV-W
application to withdraw form doing business. becomes effective 60 days after filing with the sec and after 30 days in the case of state registered adviser
cancellation of registration by the sec
sec has the power to cancel registration if the person is dead, no longer doing business or does not meet the dollar amount
investment counsel
must do these 2 things to have that name
1-the IA principal business must be giving investment advice
2-provide investment supervisory services
ex. discretionary authority, or manage heavy an account or compensated on the average value of assets in the ac
substantial prepayment of fee
when customer makes payments in advance for services to be done in the future
500 for USA (6 months) considered substantial prepayment
1200 for investment adviser act of 1940 (6 months) to be considered substantial prepayment.
balance sheet requirement for federal covered adviser
must include a balance sheet (audited by independent PA) with the advisers ADV part 2A for its most recent fiscal year..
BALANCE SHEET REQUIREMENTS FOR STATE REGISTERED ADVISERS
if substantial prepayment of fee is made than a brochure must be included(ADV part 2A) must have audited balance sheet.
if discretionary authority is exercised but no custody than within 90 days of fiscal year advisor must give a balance sheet to the admi
DISCLOSURE OF FINANCIAL IMPAIRMENT
adviser must disclose any impairment issues that might hinder him from meeting the contractual evidence
specific financial requirements for state registered adviser
administrator may require an adviser who has control of client fund or security to post a surety bond or maintain a minimum net worth.
discretionary is $10k
custody is $35k
if using surety bonds than it must be 35k
if not but still accepts prepayment of $
Failure to Maintain Minimum Net Worth
if an investment adviser net worth fall below minimum then he must tell the administrator on that day or tomorrow after sending the notice, adviser must file a financial report the next day.
must include # of clients account
must obtain a bond rounded up
not assets
goodwill
patents
copyrights
personal items car, home, home furniture shit like that
Investment adviser representative
means any partner, officer, director or other individual employed by or associated with an investment adviser that is registered or required to be registered under the Uniform Securities Act (state registered IA)
Financial Requirements of IARs
unlike a financial adviser for a representative there are no financial requirements. only bankruptcy can deny you
De minimis Exemption for Investment Adviser Representatives
if the representative doesn't have a business in the state and has had 5 or less retail clients in 12 months then does not have to register
IAR TERMINATION PROCEDURES
if a IAR terminates quits working for an advisor than the advisor must tell the administrator (state level)
federal level ---if he quits then the representative has to tell the administrator
Scalping
practice whereby an investment adviser, before the dissemination of a securities recommendation, trades on the anticipated short-run market activity that may result from the recommendation.
record keeping of an investment adviser
1-dates of audit
2-copy of audited financial statement
3-evidence of mailing the audit to all everyone within 120days of fiscal year
does not need
1-minutes of the board of directors,
2-bank statements
3-trust agreement.
TIME PERIOD FOR MAINTENANCE OF RECORDS
5 years , first 2 years must be held in principal office
as long as you have it for one state the others can't touch you
for broker dealers its 3 years
STORAGE REQUIREMENTS
paper or media
PERSONAL TRADING PROCEDURES
1, prior written approval before access persons can place personal trades
2. maintaining lists of issuers of securities the firm is analyzing/recommending, personal trading prohibited
3. maintaining restricted lists of issuers about which the firm has ins
Access Person
any SUPERVISED PERSON
1-person that has acces to nonpublic information as well
2-involved in making security recommendation to clients
BROCHURE RULE
?Narrative Format- describe everything
?plain english - don't use big words
?Disclosure Obligations as a Fiduciary - adviser must tell the client everything
?Full and Truthful Disclosure- shit must be true
?Filing- brochure must go through IARD, unless yo
BROCHURE SUPPLEMENT DISCLOSING INDIVIDUAL
ADVISORY PERSONNEL
1-cover page- identifies the adviser
2-Educational background and business experience
3-Disciplinary information-past 10 years
4-Other business activities-like if he receives bonuses or compensation based on sale
5-Additional compensation- beyond paid by
Supervised Persons Included in the Brochure Supplement
investment adviser must prepare a brochure for a supervised person if he
1-gives investment advise and has direct contact with client
2-has discretionary authority of clients asset even if no client contact
WRAP FEE PROGRAMS
client charged a specified fee , or fees, not based directly on transactions in a client's account, for investment advisory services
must complete Part 2A appendix 1
buy,hold clients aren't suitable for this
Delivery Requirements for SEC Registered Advisers
brochures must be delivered to each client, after that each year within 120 days of the end of the fiscal year a updated brochure must be sent only if the client has change his/her summary
Delivery Requirements for State Registered Advisers
advisers are required to deliver the brochure to the client at least 48 hours before entering into an advisory contract if not the client can cancel the contract with no penalty, has five days to do it after the contract
ppl who don't get Brochure Supplements
1-client who 1A is not required
2-clients who receive impersonal advice(subscription)
3-clients who are employees or similar
Exemptions from the Brochure Rule (delivery exceptions)
1-Contracts with a registered investment company are exempted
2-advisers providing solely impersonal advisory services
UPDATING THE BROCHURE
1-updated each year
2-when shit found inaccurate
federal covered adviser brochures
1-must file amendments to their brochure electronically to IARD
2-do not have to file brochure supplement to SEC but must have copy
State-registered advisers brochure
required to file amendments to their brochure and amendments to their brochure supplement via state authority through IARD
RULES ON CUSTODY OF FUNDS AND SECURITIES
Safekeeping Required:
-in order to have custody of client funds, MUST:
? have a qualified custodian (i.e. Fidelity, Schwab)
? notify clients of the custodians name, address, etc when accounts are opened
? account statements are delivered to clients, eithe
rule 206(4) advertising
cannot have untrue statements,
testimonials
references tO PAST RECOMMENDATIONS,
offering free services, guarantees
advisory contract
must include
1-smount of prepaid fee tote returned
2-client consent
3-and discretionary authority
qualified custodian
bank or savings association that is insured `
benefits to an investment adviser using a qualified custodian
1-administrative burden lifted of shoulders
2-no surprise annual audit by an independent accountant
Written authorization
adviser must have written authorization from each client to deduct advisory fees from the accounts held with the qualified custodian.
Notice of fee deduction
each time a fee is deducted from clients account, the adviser must send the qualified custodian notice of it as well as send the client an invoice telling him about the fee
Notice of safeguards
the investment adviser notifies the Administrator in writing on Form ADV that the adviser intends to use the safeguards
two cases where the net worth/bonding requirements are waived:
?? Advisers having custody solely due to direct fee deduction and who keep the required records and make the required notifications to clients
?? Advisers having custody solely due to advising pooled investment vehicles and who keep the required records a
FORM ADV-E
surprise exam given by an independent public accountant
HEDGE CLAUSES
any waivers that dissolve advisors form being sued can gtfo only for custody
agency cross transaction
adviser acts as an agent for both the advisory client and the party on the other side of the trade.
receives commission from both sides of the trade.
may not recommend the transaction to both parties
cash referral fees
SEC has not prohibited payment of cash referrals by IAs to persons who solicit business for them. Four conditions must be met:
- IA must be registered under IAA of 1940
- Solicitor must not be subject to statutory disqualification
- Cash referral fees be
SECTION 28(E) SAFE HARBOR
IAs must disclose their safe harbor deals to clients in Item 12 of Part 2A of Form ADV
CLIENT REFERRALS
broker dealers recommending clients to their investment advisers
DIRECTED BROKERAGE
practice of asking or permitting clients to send trades to a specific broker-dealer for execution
TRADE AGGREGATION AND ALLOCATION
practice of bundling (sometimes called bunching) trades to obtain volume discounts on execution costs.
VOTING CLIENT SECURITIES
voting proxies come to the advisers rather than the client, (brochure PART2A of form ADV)
COMPLIANCE PROGRAMS
advisers must adopt and implement a written policy and procedures designed to prevent violation as well as review them annually and have a CCO to be the cop for these policies
penalties fro violation of law
federal is $10k and 5 years
state is $5k and 3 years
CYBERSECURITY POINTS
1-cyber preparedness -address points of vulnerability
2-cubersecruity compliance program
3-cybersecurity and social media
(go back to page 247 or 233)
covered account
financial institution or creditor offers or maintains, primarily for personal, family, or household purposes, that involves or is designed to permit multiple payments or transactions
REGULATION S-P
requires that firms take identity theft seriously, also allows adviser to share nonpublic stuff to third parties unless they the person opt out (30days)
residual rights
what little corporate assets company stock holders have upon company dissolution closing
American Depositary Shares (ADSs)(ADRs)
helps foreign stock trade to be easy by letting domestic banks issue shares of stock in a non us company (1-10 shares) can receive dividends (
still bear currency risk even if traded in U.S banks )
PURPOSE OF A BCP
used to maintain the continuous operation of a business in the event of an emergency situation.
Registered Owner
Foreign stock dividends get paid to the custodian banks rather than the owner which then the banks converts it to $ and takes out taxes.
owners can claim (U.S tax credits for them)
Emerging markets
markets in lesser developed countries
potential for rapid growth rate which attract foreign investors since their local markets grow slower.
senior securities
company debt and preferred shares
Custodian Bank
holds the shares of foreign stock that the ADRs represent
exchange controls
restrictions on currency conversion or movement
Rights and warrants
allows investor to buy more shares under certain circumstances ( don't give dividends ) since their not owned
Considered (derivatives )
Developed markets
countries that have highly developed economies
preemptive rights
allows stockholders the ability to buy more shares of a the company in order to maintain their percentage in the company
Country risk
risk in investing in other countries
warrant
allows the owner the right to purchase securities from the issuer at a specified price, normally higher than current market value. however it forever/long term exercise right
rights offering
allows shareholders to buy shares at below the current market
EMPLOYEE STOCK OPTIONS
Allows the employer to hold a stock options contract with he ability to exercise it at a stated price and time period. Causing the employer to wait till the stock value goes up then exercise the contract then sell it for profit.
Nonqualified Stock Options
(most common)
employee is taxed as ordinary income
Employer receives = tax deduction as salary expense for the diff between the current market price and the strike price.
Incentive Stock Options
planned by the board of directors and approved by the shareholders,
better than NSO if proper executed
if held for one year before exercise and sold in 2+ years , taxed as long term capital gain
stockholder who receives rights may
1-exercise the rights- to buy stock
2-sell the rights- and profit from the market value
3-let the rights expire- and lose the value
Origination of Warrants
offered to the public as sweeteners in connection with other securities like preferred stock, debentures, etc all bundled together into something called units
2 common forms of discounted cash flow
1-dividend discount models
2-dividend growth models
Dividend models
belief that the value of a stock can be determined based upon current or anticipated dividends.
Fundamental analysts
evaluate economic trends, business conditions and quality of a particular corporation business.
Technical analysts
method of attempting to predict stock price trends over the near term, generally four to six weeks. (ANYLIZES THAT MARKET)
Dividend Discount Model
value of a stock should be equal to the present value of all future dividends
dividend growth model
value of stock = next years dividends / (required rate of return -growth of dividend)
support level
that price where the stock price "bottoms
resistance level
the stock's price reaches a high enough level where there are now more sellers than buyers and the stock no longer rises in price.
Breakout
price movement penetrates the support or the resistance level (3%)
moving average
modify the fluctuations of stock prices into a smoothed trend (line graph)
Short Interest Theory
number of shares that have been sold short
high short interest =bullish
low short interest= bearish
Odd-Lot Theory
transactions of fewer than 100 shares.
belief that small investor buy and sell on the worst times
when they buy analyst are bearish
&
when they sell analyst are bullish
Advance/Decline Theory
number of issues (stocks) closing up or down on a specific day reflects market breadth
parity
means equal to /// same value as
discounted cash flow
determining value of debt security
via predicting future income
by calculating wha future cash returns will be worth at the time they are received
Treasury Inflation Protection Securities (TIPS)
issued with fixed interest rate but principal amount is adjusted seminannulay via (CPI) , used for protection against purchasing power risk (payment every 6 months) backed by the U.S gov
The Federal National Mortgage Association (Fannie Mae)
purchases and sells real estate mortgages by FHA and VA via issues mortgage-backed bonds that can be purchased by individual investors.
(privately owned)
Government National Mortgage Association genie mae
pass-through certificates, pool of FHA-insured mortgages or VA or Farmers Home Administration- guaranteed mortgages
and get paid monthly
(25K denomination )
(federal owned)
Tennessee Valley Authority (TVA)
bonds not backed by U.S. government. Instead, backed by revenues generated by agencies' projects. largest power company owned by the US gOV.
1-TVA Discount Notes have maturities less than 1 year
2-may issue long-term bonds with final maturities of up to 5
Secured debt securities
backed by assets of a corporation
unsecured debt securities
backed by the companies credit reputation
Mortgage Bonds
bond backed by company real state
Equipment Trust Certificate
backed by company equipment (usually make down payment of 20%)
Collateral Trust Bonds
Bonds backed by financial assets.like stock
Debenture
bonds backed by the companies word and credit rating
guaranteed bond
bond backed by another company other than the one issuing it
Senior
meaning first to receive payment if company goes bankrupt
Subordinated
lower part of the payment totem poll (common stock)
General Obligation Bonds (GOs)
bonds issued by the government to build shit that dent produce income like public school or park
ad valorem tax
property tax on the current value of the land
Revenue Bond
bond used to build shit that produce income like stadiums or college
Investment-Grade Debt
bonds that are BBB or BAA or higher
High-Yield Bonds
aka lower grade bonds or junk bonds because they have a high risk of defaulting
yield Spread (Credit Spread)
Difference between the corporate and government bond rates
fOREIGN BONDS
in the name issued outside the US
eurobond
long-term debt instrument issued and sold outside the country, payed in foreign currency
eurodollar bond (yankee bond)
U.S. dollar-denominated bond issued and sold outside the U.S but dividend and principal paid in U.S dollars
BRADY BONDS
exchange defaulted commercial bank loans issued in less-developed countries, particularly in Latin America, with a security that could be carried on the bank's books as a performing asset(10-30 years maturatie)
ASSET BACKED PASS-THROUGH SECURITIES
debt obligations backed by a pool of mortgages and usually have a pass-through feature.(EX. GENIE MAE)
Freddie Mac (FHLMC) Participation Certificate (PC)
pass through certificates with higher yield than genie mae, conventional, residential mortgages on single-family homes
Collateralized Mortgage Obligations (CMOs)
bonds that are collateralized by mortgages or by mortgage-backed securities
issued with a stated maturity either short mediate or long term,
as the principal is being paid, it is used a exclusively for the newest maturity until each maturity has been paid
Benefits to Investors in mortgage back securities
unlike other loans these pay higher rates of return
Risks to Investors mortgage back securities
1- difficult to understand
2-prepayment risk
3-default risk
4-reinvestment risk
5-liquidity risk
CALLABLE BONDS
allows the issuer to redeem the bond by paying of the principal before the maturity date.
exercised when interest rates have declined allowing them to resell the bonds with a lower rate
Call Protection
is a set provision that is held for a number of years which allows the issuer to not be able to call back the bond
CONVERTIBLE BONDS
issued by corporation only, and are exchanged for common stock only,
when converting use { 1000 � (price per share) = x
carry low interest rate
1-current yield (CY)
2-Yield to maturity (YTM)
3-Yield to call(TYC)
1-CY- Current yield = annual income � current market price
if coupon rate is higher or lower than current yield
if yield is higher than coupon rate bond is trading at a discount
and vice versa
Tax Equivalent Yield
interest on corporate bonds is taxed as ordinary income on both state and federal tax returns
tax equivalent yield (TEY)
Municipal bond coupon divided by (100% - investor's tax bracket).
bond pricing Corporates and Municipal
quoted as percentage of par and each point is worth 10$ 1/8 = .1
bond pricing for Governments
quoted as percentage of par and each point is worth 10 and in 0.1 = 1/32
example 90.8 = 90 + 8/32 =902.50
price yield relationship
as interest rate go up then older bonds will be going down and vice versa
Zero-Coupon Bonds
issued at a discount , no risk, more volatile , and must file form 1099-OID
Bond Listings
DEF 5s35 @106.
DEF=company name
5= interest rate(coupon or nominal)
35=yield to maturity
106= price which in this number is $1060
DURATION
measure the sensitivity of debt when faced with interest rate changes
1-bond paying the highest interstate rate will have the shortest duration
2-bond paying the lowest coupon rate will have the highest duration
3-in coupon bond duration is less than matu
Discounted Cash Flow (DCF)
the higher then DCF the more valuable the investment
Convexity
used to determine price volatility of a bond to a significant change in interest rate
MONEY MARKET
market for buying and selling short term stocks
Treasury Securities
no credit risk and very liquid in the secondary market, and interest is exempt from state income tax because of that the yield is low af
CD
1-asset on family balance sheet,
2-preferred answer when client wants no risk
3-insured by FDIC
4-no interest rate risk
5-always redeem at face value
Negotiable Certificates of Deposit (aka jumbo CD)
unsecured time deposits by banks , pay periodic payments(semi annually) price form $100k to $1 mill ,( can sell to anyone not just bank)
FDIC insurance up to 250K
Commercial Paper
exempt for registration issued by a corporation , short term, to raise working capital, are like t-bill , offered at discount
Eurodollars
U.S. dollars deposited in banks outside the United States, basically the money sits in another bank not exchanged but kept as the $ amount,
short term
interest rate is based on LIBOR
London Interbank Offered Rate (LIBOR)
The world's most widely used benchmark for short-term interest rates
MORTGAGE-BACKED SECURITIES
issued in tranches which means they are sliced into pieces having diff maturities and becomes money market when it reaches final year
INSURED DEPOSITS
funds involved are insured by the FDIC.
Demand Deposits
checking account , savings accounts and money market accounts
Certificates of Deposits (CDs)
non-negotiable - can't sell it to anyone only the bank $500 minimum with maturity 3-5 years, early withdrawal has penalty and liquid
TYPES OF INVESTMENT COMPANIES via act of 1940
1. Face Amount Certificate Companies
2. Unit Investment Trusts (UIT's)
3. Management Investment Companies
A. Closed End
B. Open End
Face-Amount Certificate (FAC) Companies
issuer promises investor a fixed amount in the future and then pays it either as a lump sum or periodic installments
Unit Investment Trusts (UITs)
create a portfolio of debt or equity designed to meet the company goals then sell the interest payments that they will receive as shares. A UIT may be fixed or non fixed. (not managed)
fixed - UIT purchases bonds, and they wait till they terminate
non fix
Management Investment Companies
open-end investment companies - only sells common stock (mutual fund) shares redeemed by the company always.
or
closed-end investment companies - sells limited amount of shares then closes. (secondary market) (common, preferred, debt) (no sales charge)
Closed-End Investment Companies
trade based on supply and demand therefore selling power doesn't use the NAV, country funds , price=current market value + commission , compute nav weekly
country funds
organized as closed-end
Open-End Investment Companies
mutual fund's POP is the NAV per share plus any applicable sales charges, NAV calculated daily
Forward Pricing
the you buy into a mutual fund if its after 4pm then you price is going to be what the nav is calculated the next day
A Class: Front End Load
have front sales charge, meaning you pay the charge upfront (most common)
B Class: Back-End Load
pays when he sells his shares back. ( declining sales charge till it reaches 0)
12b-1 asset-based fees
advertising charges and shit similar to it
Letter of Intent (LOI)
A person who plans to invest more money with the same mutual fund company may decrease overall sales charges`(13 months to pay)
breakpoint sales
not telling a customer that he is a couple thousand dollars away from entering a new sales charge which would benefit him but be less money for the dealer. And making him buy the stock at the greater sales charge so the dealer can make more money
Backdating the Letter
LOI can be signed as late as 90 days
family of funds.
more than one fund inside a mutual fund
Summary of Key Mutual Fund Characteristics
?professional investment adviser manages the portfolio
?provide diversification
?custodian (usually a bank) holds assets for the investor
?$500 or less, to open an account and allow additional investment for as little as $25.
Exchanges Within a Family of Funds
-allowing an investor to convert an investment in one fund for an equal investment in another fund in the same family
-allows investor to avoid a sales charge
-considered a sale for tax purposes and must be reported at time of exchange
Growth Funds.
invest in rapidly growing companies, principal growth not income, instead of dividends its R&D-
Stock Funds
small cap and large cap
small cap = $300-2billion
large cap = $10 billion +
Aggressive growth funds
small cap stocks
Income Funds
invest in securities that pay high dividends and interest
ex. utility company stocks, large-cap stocks, and preferred stocks.
Combination Funds.
growth and income fund combined,
Specialized (Sector) Funds
25-100% of their assets invested in their specialties
ex.gold funds, insurance funds, tech funds
Special Situation Funds
- buy securities of companies that may benefit from a change within companies or the economy
Index Funds
invest in securities to mirror a market index, passive style, has lower
ex. S&P 500
Foreign Stock Funds
invest in companies outside the US
International funds
entire portfolio invested in securities issued outside of the United States.
Global funds
invest in US and foreign securities
Bond Funds
income primary goals,
risk-corporate bonds
safe-government issues
capital appreciation- lower rates issues
Tax-Free (Tax-Exempt) Bond Funds.
invest in municipal bonds or notes that produce income exempt from federal income tax.
U.S. Government and Agency Securities Funds.
government issued bonds like genie mae
Foreign Bond Funds
invest in foreign sovereign and/or corporate debt issues
Balanced Funds
invest in stocks for appreciation and bonds for income are not 50-50
Asset Allocation Funds
split investments between
stocks for growth,
bonds for income,
and money market instruments (or cash) for stability.
active trading
Money market funds
no load(so no fee on liquidation or payment), (very liquid), open end, temporary holding,
NAV fixed at $1
not insured by FDIC
Restrictions on Money Market Funds
investments limited to securities w/ remaining maturities at 397 days or less, w/ average portfolio maturity exceeding 60 days
must receive high rating
Target Date Funds
aka life cycle funds are designed for people that are expected to retire within a few years
when comparing mutual funds one must look at
1)cost
2)taxation
3)services offered
cost
will it be front iend load
back end load
taxation
all capital gains distribution are from long term gain so taxed 15%
services offered
in the name, the shit that a mutual fund offers,
retirement accounts, investment plans, check writing privileges, phone transfers etc
exchange traded funds ETFs
either a UIT or open-end fund, invest in specific index like S&P 500. trades like a stock on a exchange like a nasdaq and can be traded on margin
Real Estate Investment Trusts (REITs)
manages a portfolio of real estate investment to make profit for shareholders. (long-term)(liquid)(not mutual funds & DPP)
publicly traded and are pooled capital investment
either own
1-commercial property
2-mortgages on commercial property
3-or do both
n
why invest in REITs
invest in real state without liquidity risk,
negative correlation between market and real state
reasonable income and/or capital appreciation
taxed as ordinary income rates
Exchange Traded Notes (ETNs)
are a debt security backed solely by a single issuer.
do not buy or hold assets
leveraged ETFs
deliver a multiple of the return of the benchmark index they are designated to track.
(ex. a 2x leveraged fund would try to deliver 2times the return)
(options, futures, swaps)
Inverse (reverse) funds
deliver returns that are the opposite fo the benchmark index they are tracking.
ex.if benchmark is down 2% than goal is to be up 2%
(can be traded on an exchange)
structured products
instruments used to create products to fit your needs
annuity
contract between and individual and a life insurance company for retirement income.
investor can pay either in lump sum or periodic
1-fixed annuity
2-variable annuity
3-combination annuity
fixed annuity
fixed rate of return (risk is inflation since payout is already fixed)
variable annuities
separate account that is resistant to inflation, allows you to take hold of the risk.
(tax deferred basis)
separate account
where your money for a variable annuity goes,
combination annuity
payout that consist of fixed amount as well as variable to keep up with inflation
index annuity
credits the investor based on the result of a particular stock index in the market. (ex.S&P 500)
have long surrender charge
different credit methods
1-annual reset-interest found by comparing index value in the beginning of year to the end of the year
2-high water mark-highest value reached by index compared to value of the beginning of the year.
3-point to point -comparing index at the end of contrac
deferred annuity
purchased in a single lump-sum and with payout sometime in the future that investor picks
immediate annuity
depositing single lump -sum and insurance begins to pay out the benefits immediately (60 days)
accumulation stage
pay in period, contract holder can terminate the contract at any time during this phase. surrender charges apply 5-10 years
accumulation units
represent investors shares of ownership
sales charge on variable annuity
...
annuity payout options
payed either thru lump sum or periodic payments
life annuity/ straight/pure life
homie receives periodic payments (monthly) over his lifetime. no added anything. (s largest payments)
joint life with last survivor annuity
annuity covers 2 or more people and the payout is conditioned on both all lives.
refund annuity
payment is continued even after death util initial premium is paid off
Mortality Guarantee
guaranteed payment for the rest of your life
Operating Expense Guarantee
the insurance companies cost projections increase therefore having to pay the difference
annuity unit
what accumulation units become which is how much money the account will per/has
assumed interest rate (AIR)
creates a % that the variable separate account has to either =, +, or decrease for the next payout
Variable Annuity Payouts
keep pace with inflation, fixed mortality rate and capped administrative expense
TAXATION OF ANNUITIES
IF NOT PART OF EMPLOYER THAN AFTER TAX, SO everything is after taxed
Random Withdrawals
Settlement option in an annuity whereby the annuitant takes the value of the sub-accounts in two or more withdrawals rather than one lump sum.(LI-FO) last in first out
Lump-Sum Withdrawals
Customers sell all of their shares
tax ordinary income and plus 10% tax if under 59.5years old
ADVANTAGES TO INVESTING IN VARIABLE ANNUITIES
1-tax deferred growth
2-gauranteed defat benefit
3-lifetime income
4-IRS Section 1035 exchanges-change annuity
5-can delay the payout forever
6-infinite contribution
7-tax free transfer between sub accounts
8-no court shit.
life insurance
contract between an insurance company and an individual created to provide money to the beneficiary of the person in the event of his death
TERM INSURANCE
protection fro a specified period of time. they pay the death benefit only if the person dies during the term period
can be used to provide a good expensive coverage for a short period of time for alot less
WHOLE LIFE INSURANCE (WLI)
provides protection for the whole life
scheduled premiums, fixed death benefit, premiums to general account, and guaranteed cash value
UNIVERSAL LIFE
A combination of a flexible premium and adjustable life insurance.
variable life insurance
scheduled premium, minimum gauranteed plus variable death, premium to general and separate account, no guaranteed cash value
Scheduled (Fixed) Premium Variable Life
determined at issue and requires proof of insurability, premium calculated via age+sex+ face amount of policy.
Universal variable life insurance
flexible premium, variable death benefit, premium to seperate account, no guaranteed cash value.
deductions for fixed and variable
fixed are
?? sales load;
?? administrative fee; and
?? state premium taxes.
variable are
? mortality risk fee (cost of insurance);
? expense risk fee; and
? investment management fee.
Variable Life Policy Loans
75% of the contract's cash value after 3 years,
Variable Life Insurance Contract Exchange
1-contract exchange provision must be available for a minimum of 2 years
2-no medical underwriter is needed
3-
viatical or life settlement.
life insurance policy sold for 75% or a little more or lower of its face value to a company
Derivative Securities
are options - which a offers a person the means to hedge or protect his investments.
covered call
provides partial protection from a loss by reducing the stocks potential gain
long and short
long=buyer
short=seller
selling calls and puts
both give income used if you already attain the shares and
(call) if you think that price isn't going to fluctuate
(put) if you think that price isn't going to move and expire worthless
LEAPS
Long term options 3years or more
hedging
Long call- to protect against market increasing
long put- to protect against market decreasing
short call- to protect from market decreasing while getting a premium
short put- to protect against market increasing plus premium
(Long is always better than s
Futures Contracts
(not security) (traded in the exchange) (regulated/standardized) used for hedging commodities price movements or speculating price movements. bot buyer and seller liquidate position before contract expires.
forward contracts
(not securities) arrangement between the seller and the buyer (non liquid)
1 the seller will see an asset to the buyer for a fixed price at a specific date. used for hedging commodities.
hedge funds
limited partnerships that manage portfolios of funds for wealthy individuals and financial institutions
recommending hedge fund to client
1-generate positive returns in a bear and bullish market
2-asset allocation (reduce risk)
3-plethora of options
Direct participation programs (DPPs)
pay no dividends, offer limited liability to investors via passing income, gains, losses, deductions, and credits directly to investors, illiquid, long commitment
unit of ownership is call interest rather than share
Limited Partnership (LP)
must have
1-limited partner - passive , make no decision must get payed before (GP)
&
1-general partner -active investor, assume unlimited liability
(private) placement limited partnership
small # limited partners adds more or equal to 100k (usually offered to Accredited investors )
publicly offered limited partnership
large # of investors makes small deposits 1k-5k
Subscription Agreement
Application submitted by an investor seeking to join a limited partnership. All prospective limited partners must be approved by the general partner before they are allowed to become limited partners.
TAX REPORTING FOR PARTNERSHIPS
Form 1065, investor may only use a tax loss from a partnership to offset income from another passive investment
Operating loss
partnership losses allows them to claim those losses in their passive income tax return
Operating income
operating income passes through to investors avoiding double taxation( considered passive income and may be offset by any passive losses
Depreciation expense
creates larger losses in the early years.
person seeking current taxable passive income
should not invest in an oil and gas exploratory drilling program
disadvantages of DPP
1-liquidity risk
2-legislative risk
3-risk and audit
4-depreciation recapture
passive realstate investments are
1-REITs
2-DPPs
BENEFITS OF INVESTING IN COMMODITIES
1-hedge against inflation
2-diversification
3-potential returns
RISKS OF COMMODITY INVESTING
1-principal risk
2-Volatility
3-exposure to foreign markets
4-high cost
5-lack of income
fiscal policy
government's use of spending and taxation to influence economic activity ( determined by the president and congress)
budget surplus
when government tax revenues exceed expending
budget deficit
when government expending exceed tax revenues.
Monetary policy
central bank takes action using money and credit to influence the economy
(determined by the fed)
USING
1-EXPANSIONARY POLICY
&
2-CONTRACTIONARY POLICY
expansionary policy
when the central bank increases the quantity of money and credit in an economy
contractionary policy (tight, restrictive)
when the central bank reduces the quantity of money and credit in an economy
Keynesian Economics
reduce taxes and increase government spending
Classical and Supply-Side Economics
lower taxes and less government regulations, benefits consumers through a greater supply of goods and services at lower costs
supply creates demand by providing jobs and wages.
Monetarist Theory
1-Quantity of money(money supply) determines overall price levels and economic activity.
2-belief that a well controlled , moderately increasing money supply leads to price stability
the Fed
determines how much money is available for businesses and consumers to spend
(the Fed) 3 primary tools employed to effect the money supply
1- reserve requirement
2- discount rate
3-open market operations
change in reserve requirements
fed tells commercial banks how much money they must keep in their deposit.
increase deposit amount=high interest and less money in the economy
decrease in deposit amount= low interest and more money in the economy.
change in discount rate
the rate the fed charges bank
(higher rates)(=)(lower borrowing) and (reduction in money supply)
{and vice versa}
open market operations
fed buys and sells U.S treasury securities in the open market. via using Federal open Market committee
purchased(increase money supply)
sell(decrease money supply)
the fed does not
set the prime rate, only the major commercial banks do
business cycle
1-expansion
2-peak
3-contraction
4-through
expansion
increase in consumer demand for goods and services leading to...
increase rate of inflation and industrial production leading too
1-decrease unemployment
2-decease in inventory
3-increase in stock market, property value and GDP
Peak
1-decrease GDP growth
2-decrease unemployment rate/just slows hiring process
3-increase inflation
4-slow rate of growth in spending and investments
contraction/reccesion
1-increase bankruptcies and bond deferrals
2-decrease hours of work, leading rise of unemployment
3-falling stock price
4-decrease inflation rate
5-rising inventory
6-negative growth rate
7-decrease consumer spending
through
1-change in GDP growth from negative to positive
2-high unemployment rate, increasing use of overtime and temp workers
3-spending on goods and houses may increase
4-moderate or decreasing inflation
cyclical industries
sensitive to business cycles and inflation trends, any durable good like machinery or cars, raw material like steel
counter cyclical
when the economy is good these stocks go down and the opposite when they go up. (gold, silver)
growth industries
grow faster than the economy
defensive industries
least affected by changes in the market, food, drugs, alcohol, energy
special situation stocks
are stocks of a company that go up due to hype or new product realize.
inflation
increase in prices measured by the CPI,
1-mild inflation-encourages economic growth , via gradually increasing prices to stimulate business investments
2high inflation-reduces dollar value therefore demand for goods and services decrease
inflation inertia
inflation does not react immediately with unexpected changes in the economy
causes of inflation
1-
excessive demand
- aggregate demand exceeds aggregate supply causing prices to rise
2-
monetary expansion
also but not as important
3-decrease in taxes
4-goverment spending
deflation
decline in prices, usually occurs during recession when unemployment is on the rise
ppl, buy govt securities for protection and probable increase in capital
caused by when demand exceeds supply
1-shrinkage in money supply
2-increase in taxes
3-less gov sp
top down analysis
company measures broad (ecnomy as a whole) first than narrows it down to select company/ies
Bottom-up analysis
start with the specific Company first then measure it though the industry and then economy
federal funds rate
the rate that banks charge for 1 million$ loan
prime rate
inters rate on corporate loans that large commercial banks set and small banks follow
lowers when the fed expands the money supply and raises when the fed contracts the money supply
discount rate
the rate New York fed bank charges for short term loans
broker call loan rate
the interest rate banks charge broker-dealers for margin calls
yield curve
difference between short- and long-term interest rates normally reflects an upward sloping line
Inverted "negative" Yield curve
When long-term interest rates are lower than short-term rates, so the yield curve slopes downwards, reflecting higher yields for short-term investments.
yield curve relationship between corporation and government bonds
if there is a big gap(separation) than its recession time
if they are closing in or short gap than its expansion time
gdp
the total market value of all final goods and services produced annually in an economy
GNP
income U.S people earned abroad only
net exports
lead to an increase in GDP
consumer price index
measure of the general retail price level
balance of payments
measure imports and exports transaction fro the current year
trade deficit
when less exports and more imports, leading currency to decrease
trade surplus
when to much exports and low imports causing currency to strengthen
intangible assets
nonphysical property like logo, contract right, trademark.
indicators of business cycle
1-leading -where we are going turn down during recession and turn up before beggining of expansion.(way to see the future direction of the economy)
-building permits, manufactures, stocks, money supply
2-coincident- (current scenario) that
-changes with b
current assets
1-cash and equivalent
2-accounts recievable
3-prepaid expenses
4-inventory
easily converted to cash in less then a year
Current liablities
1-account payable
2-accrued wages payable
3-current long term debt
4-notes payable
5-accrued taxes
6-deffered tax credits
fixed assets
1-property
2-plant
3-equipment
shit that depreciates overtime
net wort or shareholders equity
assets-liabilities
capital in excess of par
the amount of money over par value that was received
retianed earrings
profits that have not been paid out in dividends.
capitalization
long term debt + equity securities .
capital structure
amount of debt and equity that makes the companies capitalization The 4 elements used are....
1-longterm debt
2-capital stock(common &prefer)
3-capital in excess of par
4-retained earnings
shareholder equity
capital stock + capital in excess of par + retained earnings
company issues securities
increase in share holder equity and cash on the asset side of the balance sheet
company issues convertible securities
decrease liabilities and increases equity ....no change in the asset side of the balance sheet
company issue bond redemption
cash , outstanding debt, and liabilities decrease while company cash flow increases
company issue dividend
when declared, retained earnings are lowered and current liabilities increase. once paid...... it reduces cash in current assets and also reduces current liability.......does not change corporate asset, libiality and shareholder equity,
company issue stock split
does not effect shareholder equity, only par value of share and outstanding shares change.
financial leverage
company ability to use long term debt to increase its return on equity.
highly leveraged
company with a high ratio of long-term debt to equity (50% or higher)
working capital
current asset - current liabilities.
amount of cash a company has available
footnotes
found at the bottom of income statements and can be pages long
identify significant financial and management issues that may affect the company's overall performance
LIFO (Last in First out)
COGS have
1-higher cost of recently purchased inventory,
2-higher production cost ,
3-reported income is reduced
FIFO (first in, first out)
pretax margin is determined by subtracting cogs and other operating cost from sales to arrive at net profit.
income statement
1-revenue(what came in)(total sales)
2-cost of goods sold(cogs)(labor, material,production)
3-pretax income (how much is left)(amount of taxable income)(operating income minus interest payment expenses)
fiscal year
Any 12-month period used by a business that ends other than on December 31
earnings per share
measures the value of a company's earnings for each common share
earnings available to common/number of shares outstanding
Earnings available to common
remaining earnings after the preferred dividend has been paid
earrings per share after dilution
when all convertible securities are converted to common stock
CURRENT YIELD
annual dividend payout as a percentage of the current stock price
annual dividend per common share/market value per common share
dividend payout ratio
measures the proportion of earnings paid to stockholders as dividends
annual dividends per common share/earings per share (EPS)
statement of cash flow
1-operating activit�s
2-investing activites
3-financing activities
cash flow from operating activities
money coming in, receipts, from selling goods as well as income from items like dividends and interest. also money going out. like payroll taxes, rent shit like that
(only use income statement)
cash flow from investing activities
transaction and events involving the purchase and sale of securities, land, buildings, anything that not held for resale due to being a product for business
cash from financing activities
money from stocks or bonds, classified under financing activities. as well as payment to repurchase stock or retire bonds and the payment of dividends
(only use balance sheet)
cash accounting
put in books when cash is received
accrued accounting
put in book before cash is received
form 8k
reports newsworthy shit to the sec and the public. like changes in management or mergers ( must be notified 4 days after event)
10k
annual financial report
balance sheet
assets= liabilities+Net worth
book value
net worth - preferred stock - intangible assets
gross margin
is percentage so
(cost of goods sold - revenue )/ by revenue
book value per common share
Book value/ common shares outstanding
credit and debit
credit - when money enters U.S account
Debit - When money leaves U.S account
10q
Quarterly report (unaudited financial information)
annual report
what shareholders must receive similar to a 10k but WRITTEN MORE FOR THEIR SHAREHOLDERS
Time value of money
difference between the value of money today and the value sometime in the future. (FV)
FV=PV(1+r)^t
present value equation
PV = FV/(1+r)^t
rule of 72
you can get the # of years it would take money to double by dividing 72 by the interest rate.
you cal also dived 72 by the number of years to see what the interest rate has to be in order to double.
net present value (NPV)
the difference between an investment's market value and its cost
used to build factories.
if NPV is positive the everything is good (ex. factory is built )
if NPV is negative then stay away (ex. factory is not built )
more import than IRR
IRR (internal rate of return)
method of computing long-term returns
that takes into consideration time value of money
long term returns,
the YTM of a bond reflects IRR,
income in perpetuity
method to provide income forever for a relative or charity
divide income by rate of return
beta
measure of volatility in relation to the overall market (systematic risk)
beta = 1 is good
> 1 is more volatile
< 1 less volatile
alpha
how much you should making to compared to the risk that your are taking.
( if beta is 1.5 then if the market goes up 10% then you should be getting 15% return.
standard deviation
measures amount of change around an average
price to earrings ratio
current market price of common share/ earnings per share(only common stock)
price top book ratio
market price of stock compared to the book value price
systematic risk
not diversifiable
1-interest rate risk
2-market risk
3-inflation or purchasing power risk
4-reinvestment risk
market risk
measured by beta, a systematic risk that can't be diversified/ way to avoid
interest rate risk
sensitivity of price or value due to interest rate risk (type of systematic risk)
reinvestment risk
when interest risk happens this comes with it because its hard to reinvest proceeds from redemptions. (similar to systematic risk but for bond)
INFLATION RISK
processing power risk or constant dollar risk
-- prices continually keep rising = less purchasing power,
unsystematic risk
effect some but not all risk
1-business
2-financial
3-liquidity
4-political
5-regulatory
business risk
form of non systematic risk, caused by bad management or shit
FINANCIAL RISk (credit card or default risk)
when companies can't pay what they owe and file bankruptcy
opportunity cost
whatever must be given up to obtain some item
unit 4
unit 4
new account agreement
1-everyting on a passport
2-employment info
3-customer identification program(make sure he is who he says he is)
joint account
owned by 2 or more and they all have control over it
tenants in common TIC
in a joint account if one dies the money goes to the diers estate rather than to the partner in the account
doesn't have to be 50-50 to open
(goes through probate)
Joint tenants with right of survivorship (JTWROS)
when one dies the money or account gos to the surviving person in the account
must be 50 -50 split to her created
transfer on death account TOD
best way to keep asset battle out of court .
does not avoid state taxes, when transferred there is no cost and is own by the person till he/she dies and gives it to beneficiary
totten trust or POD
poor mans will, allows the transfer of a person bank account to the beneficiary upon death of the owner
avoids probate
TENANCY BY THE ENTIRETY
The joint ownership, recognized in some states, of property acquired by husband and wife during marriage. Upon the death of one spouse, the survivor becomes the owner of the property.
Sole Proprietorship
all income or loss is given to the individual owner can loose everything) unlimited liability
general partnership
unincorporated association of 2 or more individuals.
1-not the best way to raise a lot of money
2-profits and losses flow directly to the investors for tax purposes. (avoid double taxation)
unlimited liablity
limited partnership
passive and have risk limited to their investment, don't control shit, taxed on income,
limited liability company (LLC)
business structure the combines benefits of incorporation with the tax advantages of a partnership.
are (can be unlimited) members not shareholders and not liable for any LLC debts
S corporation
taxed like a partnership, flow through profit/losses, may not have more than (100) shareholders. limited liability
only U.S citizens can use.
C corporation
company is a separate entity from its owner ONLY ONE THAT IS DOUBLED TAXES,
where large capital should be raised,
limited liability and no flow through
trust
legal entity the offers flexibility to individuals willing to transfer property
trust parties
1- settlor - person who supplies the property for the trust,
also known as the maker, grantor, trustor, or donor.
2-trustee- person that manages the trust for the beneficiary
3-benficiary- homie receiving the trust
remainder man
when the beneficiary of the trust finally dies so it gets passed on to whoever is next could be kids or dog or cat (basically anything)
simple trust
all income earned assets in the trust must be distributed during the year received,
avoids probate
complex trust
may accumulate income un like simple trust (not obligated yo accumulate) not obligated to distribute
avoids probate
living trust
established while homie is alive
avoids probate
Testamentary Trust
is a trust created by a will. It only comes into use when the person making the will dies.
only one that doesn't void probate
revocable trust
has the power to change or revoke the trust he made or shit must be a living trust
irrevocable trust
homie gives all ownership in the trust
ESTATE ACCOUNT
directed by the fiduciary on behalf of the beneficiary or beneficiary of the state
per stirpes
trickle down effect of payment to benfiicarys
fiduciary account
individual granted fiduciary responsibilities, manages the account in the best interest for the owner
trust account
where money or securities are put into a account for someone else to manage.
fiduciary
anyone legally appointed and authorized to represent and manage a person account to the persons best interest
opening fiduciary account
may require a court certification and
trust agreement only
power of attorney
1- full power - person can fack with a person account
2- limited power - person can slightly fack with eh account (buy, sell orders only no withdrawals)
durable power of attorney
[person retains power of account even when investor is sick or ill but steps down when he dies
tax treatments
1- philanthropic funds
2-program related investment
philanthropic funds
donor advised funds that give flexibility and tax advantages via giving money to charity
impact investment
investing in socially conscious funds.
program related investment
similar to impact with the spice of philanthropic
if person dies with no will
then state appoints administrator to handle shit
Grantor Retained Annuity Trusts (GRATs)
as long as grantor has the power directly or indirectly to control the trust, he is treated as the owner he may be taxed if he receives actual income or constructively.
financial profile
basically how a PPMM runs
family balance sheet
only includes assets and liabilities, not income like (salary, dividends or interest or amounts paid for expenses)
non financial consideration
shit that doesn't have to deal with finance number (, employment , future and current needs, shit like that)
risk tolerance
what an investor tolerance to risk is> important part of the clinetns profile.
is he aggressive or conservative
if investor is looking for
current income
fixed income investment,
utility company stock,
bonds, preffered
speculative investment
invert wants to gamble a portion of his investment for big returns. (a lot a lot of risk)
highly volatile stocks
junk bonds
options
futures
college tuition
529 plan
zero coupon bonds
coverdell ESA (education IRA)
disability
1-workers compensation
2-social security
3-disabilty insurance
workers compensation
covers medical expense, lost income, and death benefit.
social security
must be completely disabled (12 months) or close to death
disability insurance
like insurance if you get injured they got you
tax planning
1-asset and income shifting
2-tax deferral
3-tax-free income
asset and income shifting
shift your income and asset to a person in lower tax bracket
tax deferral
put the money into annuity or retirement plan and not get taxed on it till it gets withdrawn
tax free income
municipal bonds only interest income tho
time horizon
longer the time horizon the more market risk you take and vice versa
strategic asset allocation
allocation of diff investments composing a long term investment
Constant Ratio Plan
in the name account is rebalanced to keep the constant ratio
Constant Dollar Plan
maintain a constant dollar amount in stocks, moving money in and out of a money market fund when necessary
tactical asset allocation
short term adjustments to portfolio assets
rebalancing
moving the securities around to fit the market atm
active management
there a homie who's sole purpose is to beat the market index so very active
passive management
doesn't fack with the stock at all just mirrors the index
buy and hold technique
really buy and hold so = low transaction cost and long term capita gains taxes
growth value
investing in stock that are already performing high (overvalued stock)
value
buying undervalued stock AKA bottom of their 52 week price
Market Capitalization
small cap- $300m-$2b
mid cap-$2b-$10b
large cap- $10b+
contrarian
do the opposite of wha the crowd does. (if everyone is buying he is selling )
income portfolio focus
barbel-buy bond like a barbel (buying 1-2 years bonds and then 10 year bonds no mid at all)
bullet- buy bond every 2 years starting from big to little with all having same maturity
ladder-buy bonds at the same time with diff maturities dates and reinvest
capital market theory
all equilibrium like living in cloud 9 or shit similar no expenses, no taxes, buy at any tim,e can buy in fractions, no inflation,
Capital Asset Pricing Model (CAPM)
securities market investment theory , by giving a number to systematic and unsystematic risk. by calculating how much of a return an investment should make based on its risk. (beta coefficient)
Efficient Portfolios/Efficient Frontier
? the most return for a given amount of risk;
or
? the least risk for a given amount of return.
MODERN PORTFOLIO THEORY
measuring risk via calculating projected returns in various porfolio to minimize risk by combining volatile and price stable investment
CML(capital marker line) does not use
beta and alpha as part of its equation only on standard deviation
Monte Carlo simulation (MCS)
probable future events are simulated on a computer, generating estimated rates of return.
EFFICIENT MARKET HYPOTHESIS / Random walk theory
stocks adjust to new info quick so there is no reason to selectively pick a stock.
Weak-Form Market Efficiency
technical analysis doesn't work only (fundamental and insider trading work)
semi strong form market efficiency
fundamental analysis and technical analysis won't work to beat the market only (insider trading will)
Strong-Form Market Efficiency
nothing works only random walk( picking randoms stock )
dollar cost averaging
investing the same amount of money every month regardless of the market price
dividend reinvestment plans (DRIPs)
allows investors to reinvest earning into more stocks without getting charged at below market price
gift tax
a federal tax applied to an individual giving anything of value to another person
margin account
customer buys securities using cash and credit.
securities used as collateral
cash account
retirement accounts and custodial accounts(ut ma kids)
Opening a Margin Account
1-credit agreement -clients security as collateral
2-hypothecatin agreement- gives firms permission to hypothecate securities held in margin to a lending institution
3-loan consent(optional) - allows firm to lend securities to other brokers
margin maintenance
1-margin call- set by the fed
2-minimum maintenance- set by SRO. minimum equity that margin must tay if lower client has to put money in
3-house maintenance- set by BD, below set triggers house call
Buy Stop Orders
?? Protect against loss in a short stock position
?? Protect a gain from a short stock position
?? Establish a long position when a breakout occurs above the line of resistance (i.e., stock prices rise above historic high levels)
Sell Stop Orders
Are triggered and placed below the market price
EX: Market price for December corn is 320, a sell stop order could be placed at 319.75 or lower.
specialist (exchange market)
makes sure the market is doing great. he fills limit and market orders, just is the guy making sure the market is being screwed
Over-the-Counter (OTC) Market.
contains unlisted securities, its location is the internet and th pricing system is competitive bid and ask prices. plus the market makers are the ppl executing the buys and sell orders(dealer)
agency trade
Customer - buyer or seller - pays a commission.
making a hidden profit
a firm cannot act a s a broker and a dealer or can't add both craters to it
current bid
highest price at which the dealer will buy
firm quote
current bid an offer on a security
current offer
lowest price willing to sell
spread
difference between bid and ask
block trade
10k in shares or 200k$ whoever is less
high frequency trading
really fast internet trading,
benefit
-reduce cost, market efficiency thru arbitrage, and increased liquidity in the market
negatives
-market manupultoin, hurt small investors the not having the same tech, and snowballing effect(shit gets bigger as it rol
dark pools
buying and selling large shit without it going thru a an exchange or market
total return
present value minus future value then add dividend .....then divided the result by the present value
HOLDING PERIOD RETURN
add up fv plus dividend then subtract the result with pv then use that result and divide against the pv
inflation adjusted return (real return)
what ever the percentage return is subtract the CPI
AFTER-TAX RETURN/YIELD
do 1-the tax bracket then multiply the result with the yield
sharpe ratio
risk adjusted return
return - rate divided standard deviation
not beta
dow jones
only one that is price weighted average
THE WILSHIRE 5000
reflects the broadest coverage of the U.S stock markets
benchmark portfolios
Large Cap - S&P 500
Mid Cap - S&P 400
Small Cap - Russell 2000
Intl' Stocks - EAFE